US central bank set to decide on interest rates as Trump’s tariffs cloud economic outlook

The uncertainty stoked by Donald Trump’s economic policies is complicating the Federal Reserve’s mission, making Wednesday’s interest rate-setting meeting meeting more interesting than policymakers would have liked.

The US president’s economic agenda, including proposals to hit trading partners with steep tariffs, has sharply increased households’ inflation expectations — and triggered concerns among investors and economists that the world’s largest economy is heading for a sharp slowdown.

While the US central bank will almost certainly hold borrowing costs between 4.25 per cent and 4.5 per cent, Fed chair Jay Powell faces a challenge in getting his message right.

So far, Powell has kept a “wait and see” approach to the administration’s policies, as rate-setters seek more clarity about which of the tariffs and other policies Trump will actually implement.

Some economists think that uncertainty about Trump’s plans is leading businesses to delay investments and households to hold off splurging on big-ticket items such as holidays or home renovations.

On Wednesday, the Federal Open Market Committee will also publish its latest quarterly projections, showing expectations for interest rates, but growth and inflation.

Unchanged forecasts would leave rate-setters will out of sync with what other market watchers think. But big downgrades by Fed officials could provoke a sharp response from Trump.