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The Federal Reserve held its benchmark rate steady for the third consecutive time this year following its two-day meeting in Washington, and noted that upside risks to both inflation and unemployment have increased in the world's biggest economy.
The Fed left its key Federal Funds Rate unchanged at between 4.25% and 4.5%, where it has remained since the central bank last cut rates in December. But by raising the risks of stagflation, the Fed suggested that near-term rate cuts are increasingly unlikely.
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The decision, which analysts and markets largely expected, is the first for the Federal Reserve since President Donald Trump's tariffs on goods from Canada and Mexico, as well as the broader round of so-called reciprocal levies, were introduced last month.
"Uncertainty about the economic outlook has increased further," the Fed said in its prepared statement. The policy-making Federal Open Market 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."
U.S. economic growth has slowed notably since the Fed's last meeting in March, with the Bureau of Economic Analysis estimating a first-quarter contraction of around 0.3%.
Headline inflation pressures, meanwhile, have eased only modestly, and the Fed's preferred inflation gauge showed core prices rising at an annual rate of 2.6% in March, well ahead of its 2% target.
The job market is also holding up well, with 177,000 new hires last month and a headline unemployment rate of just 4.2%.
"In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook," the statement added.
"The Committee's assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments."
Related: Ford, Mattel join growing list of U.S. companies facing profit hit from tariffs
U.S. stocks were little changed following the Fed statement, with the S&P 500 last marked 7 points higher and the Dow rising 240 points. The tech-focused Nasdaq was last seen 50 points lower on the session.
Benchmark 10-year Treasury note yields eased 2 basis points to 4.267% while 2-year notes were pegged at 3.783%.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was last 0.32% higher on the day at 99.559.