What to know about the Fed meeting.

The Federal Reserve is expected to continue its pause on interest rate cuts on Wednesday due to concerns about President Trump’s tariffs potentially causing inflationary pressures and harming growth. This delicate balance could present challenges for the central bank in making decisions.

If the Fed decides to maintain current rates, they will remain at 4.25 percent to 4.5 percent, a level set in December after a series of cuts in the second half of 2024. The official policy statement will be released on Wednesday at 2 p.m. in Washington, followed by a news conference by Fed Chair Jerome H. Powell.

Currently, Fed officials are monitoring incoming data to gauge if consumer prices are increasing or if the labor market is showing signs of weakness. They are seeking clarity on President Trump’s economic plans, which include tariff announcements, spending cuts, and deportations.

Key points to watch include:

Temporary or Persistent? The impact of Trump’s tariffs on consumer prices and whether it will lead to persistent inflation will influence the Fed’s approach to interest rates. Chairman Powell emphasized the importance of anchoring longer-term inflation expectations and preventing a one-time price increase from becoming a long-term inflation problem.

High Bar to Cut: With the potential inflationary impact of Trump’s tariffs, the Fed faces a higher threshold for lowering interest rates. Unlike previous instances, officials are not planning proactive rate cuts. Powell may provide insight into the conditions required for rate adjustments and how the Fed aims to avoid policy errors.

Tricky Trade-Offs: Trump’s economic policies, such as tariffs and spending cuts, pose challenges for the Fed by potentially fueling inflation and dampening growth. Powell warned of the difficulties in balancing inflation goals and a healthy job market, which could lead to tough decisions for the central bank.

Volatile Financial Markets: Recent market volatility, driven by uncertainty around Trump’s trade policies, has raised concerns. Powell may address the impact of market fluctuations on bond yields, the dollar, and stock prices. Investors are keen to understand the Fed’s intervention plans in case of renewed volatility.