Fed Holds Rates Citing Higher Economic Uncertainty, Stocks Rise

The Federal Reserve kept interest rates unchanged on Wednesday, citing higher economic uncertainty and saying it wants more data regarding its direction before making any decisions.

Concretely, the federal funds rate, a benchmark for interest rates throughout the economy, will stay at around 4.5%.

Stocks pushed higher, with the tech-heavy Nasdaq 100 jumping over 1%. Wall Street's main indicators, however, have suffered since Donald Trump took office, with the S&P 500 falling into a technical correction last week after dropping 10% from its latest peak.

The decision comes as surveys show that consumer and business confidence are dropping after an initial burst of optimism following Trump's election. Several Trump officials have dismissed stocks dropping, saying such movements are healthy for markets and that their focus is on other parts of the economy.

The outlook for inflation, which the Fed is tasked with keeping in check, is uncertain as decisions from the Trump administration, especially the imposition of tariffs, can lead to price increases. Slashing government spending could also lead to lower consumption.

Former Treasury Secretary Larry Summers, who frequently comments on monetary policy, said on X that the Fed is "facing the most difficult challenge a central bank ever faces when the shock is both pushing up prices, in terms of imports, and reducing jobs, in terms of input costs." "This is what tariffs do," he added.

Economists are warning about the possibility of heading toward a stagflation, which would combinate economic stagnation with higher inflation.