The Federal Reserve on Wednesday opted to hold interest rates steady once again as President Donald Trump’s tariffs take hold and spark fears of an economic slowdown.

After a two-day meeting of its monetary policy committee in Washington, D.C., the Fed announced it would hold its rate target at 4.25% to 4.50%. Investors anticipated the move. The Fed’s target rate remains a full percentage point lower than it was when the central bank pivoted to cutting rates last September.

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The meeting of the Federal Open Market Committee was the second one since Trump imposed the sweeping tariffs. The uncertainty surrounding tariffs and cuts to federal government has caused markets to roil and preliminary economic growth numbers show that the economy contracted in the first quarter of this year.

The Fed has been working to push inflation down to its preferred 2% level, but the Trump tariffs, coupled with the uncertainty they bring, have made the situation more challenging for Fed officials.

After the onset of the pandemic, the Fed slashed interest rates to near-zero levels and held them there until inflation began trending up. Inflation peaked at about 9% in mid-2022 and the Fed began aggressively hiking rates to drive it down.

Now, inflation gauged by the consumer price index has fallen to a much more manageable 2.4%.

Still, the Fed is concerned that if it begins cutting rates too much too quickly, it could result in inflation bouncing back up.

The decision to hold interest rates steady comes despite Trump pushing for the Fed to cut rates.

After the employment numbers from April came in stronger than expected last week, Trump again took to social media to call for lower interest rates.

“Just like I said, and we’re only in a TRANSITION STAGE, just getting started!!!” the president said. “Consumers have been waiting for years to see pricing come down. NO INFLATION, THE FED SHOULD LOWER ITS RATE!!!”

Trump has temporarily paused some of his most aggressive tariffs, a reprieve that caused the stock market to rise over the past month or so.

The S&P 500 is up about 11% over the past month, but is still down more than 4% since the start of the year. Similarly, the tech-heavy Nasdaq is up some 13.6% over the month, but down 8% since the start of 2025.

In some concerning news, the economy contracted in the first quarter of 2025, according to a preliminary measure of gross domestic product. It showed GDP declined at a 0.3% annual rate, a reading dragged down by a big increase in imports as families and businesses try to get ahead of the tariffs.

The decline in GDP is a notable shift from the final quarter of last year, which saw economic output increase at a solid 2.4% rate. It also marks the only time, other than one quarter in 2022, that the economy has contracted since the pandemic.

The report set off more alarm bells about the potential for a recession, a worst-case scenario for the Trump administration and for the Fed.

While it is complicated to gauge when recessions begin and end, those in government and most economists look to the National Bureau of Economic Research, a private group, to declare one.

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NBER defines a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months,” although there is a historical precedent of labeling two consecutive quarters of negative economic growth recessionary. The periods feature rising unemployment.

The central bank has a difficult job right now, which is made more complicated by a potential economic downturn. The Fed has kept interest rates higher to quash inflation, although if GDP continues to soften, it might be forced to lower rates to help stave off a recession.