Powell said if Trump’s tariff policies remain in place they were likely “to generate a rise in inflation, a slowdown in economic growth, and a rise in unemployment”.
Typically, the Fed cuts rates if it believes the economy is struggling and raises them if prices start to rise too quickly.
But the bank – which is set up to make policy independent of the White House -said tariffs had raised the risk of both an economic slowdown and faster price rises, complicating its next move.
“It’s really not at all clear what it is we should do,” Federal Reserve chairman Jerome Powell said on Wednesday. “There’s so much uncertainty.”
Wednesday’s decision is the Fed’s first since Trump’s tariff announcements last month raised import taxes on goods from countries around the world, with imports from China facing duties of at least 145%.
Logistics firms and ports in the US have since reported sharp drops in trade, while analysts have warned that the risk of recession has ramped up significantly since the start of the year.
Trump, who promised lower rates while campaigning for re-election last year, has called on the Fed to lower rates “pre-emptively” and flirted with firing the head of the bank, criticising him as “a major loser” and “Mr Too Late” for not cutting rates fast enough.
The European Central Bank cut interest rates last month, citing concerns about the economy due to the trade tensions. The Bank of England is widely expected to take a similar step this week.