FOMC cites rising risks as it holds the line on rates

The committee held rates in the 4.25% to 4.50% range.

Stocks sank on Wednesday afternoon after the Federal Open Markets Committee decided not to make any changes to the federal funds.

This marks the third straight meeting that the Fed has held rates at the 4,25% to 4,50% range.

The Fed standing pat was widely anticipated leading up to the meeting. However, the market dropped sharply after the 2:00 p.m. ET release, with the S&P 500 sliding almost 40 points to around 5.580 before bouncing back.

“Although swings in net exports have affected the data, recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated,” the FOMC statement read.

However, it cited heightened uncertainty about the economic outlook.

“The Committee is attentive to the risks to both sides of its dual mandate and judges that the risks of higher unemployment and higher inflation have risen,” the statement said.

The rest was mostly boilerplate commentary, stating that the extent and timing of additional adjustments to the federal funds rate will depend on incoming data, the evolving outlook, and the balance of risks. In making an assessment, the committee will look at the labor market, inflation pressures and inflation expectations, and financial and international developments.

The committee also said it will continue reducing its holdings of Treasury securities, agency debt and agency mortgage‑backed securities.  

Tariffs could impede further progress on Fed goals

In the press conference that followed the release, Powell reiterated that the Fed is in no rush to lower rates prematurely.

“I can’t tell you how long it will take, but for now, it does seem like it’s a fairly clear decision for us to wait and see and watch,” Powell said, reported CNBC.

On tariffs, Powell said the increases are “significantly larger” than expected.

“If the large increases in tariffs that have been announced are sustained, they are likely to generate a rise in inflation, a slowdown in economic growth, and an increase in unemployment,” Powell said, reported CNN.

Further, Powell added that of tariffs are ultimately put in place at the current levels on a permanent basis, “then we won’t see further progress toward our goals. We might see a delay in that,” reported CNBC.

It came as no shock to interest rate traders, as 98% of them expected rates to stay the same. But the percentage of traders that anticipate no change in June rose to 71%, from 68% one day earlier.

“We’re in a moment where policy caution is prudent. For private markets, meaningful shifts in exit activity will require more than rate stability—they depend on a broader recovery in market confidence, sustained earnings growth, and greater clarity on inflation trajectories,” Natalie Hwang, founding managing partner of Apeira Capital, said. “The Fed’s decision today will reinforce its data-dependent approach, but visibility remains limited as geopolitical and policy overhangs continue to shape investor sentiment.”

The markets bounced back from the initial drop, as the S&P 500 moved back into positive territory to 5,600. Also, the Dow Jones jumped up 287 points. The Nasdaq was down about 50 points as of 3 p.m. ET on Wednesday.