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The Federal Reserve has kept US interest rates on hold for the third meeting in a row, as officials highlighted growing concerns that President Donald Trump’s tariffs will trigger a fresh burst of inflation and weaken the jobs market.

“Uncertainty about the economic outlook has increased further,” the policymaking Federal Open Market Committee said on Wednesday, after voting unanimously to keep the federal funds target at a range of between 4.25 and 4.5 per cent. The committee added that, since they last met in March, “the risks of higher unemployment and higher inflation have risen”.

Fed officials have not cut borrowing costs since December and have signalled that they will remain on pause as they weigh the effects of Trump’s tariffs on the world’s biggest economy.

In a press conference following Wednesday’s announcement, Fed chair Jay Powell said that although the US economy remains “healthy”, the levies could put the central bank in a position in which both sides of its dual mandate to foster maximum employment and 2 per cent inflation are challenged.

The Fed’s preferred personal consumption expenditures price index rose at a 2.3 per cent annual pace in March, while the jobless rate remained subdued at 4.2 per cent in April.

Powell also reiterated his recent statements that the central bank was in no “hurry” to change policy as it assesses the effects of tariffs. He said the “right thing to do is await further clarity”.

Recent reports have shown that demand across the world’s largest economy broadly remained robust at the start of the year. But, surveys have indicated that businesses and consumers are deeply concerned about how Trump’s levies will affect their respective prospects.

Guy LeBas, chief fixed-income strategist at Janney Montgomery Scott, said: “I can’t recall a time when the Fed has upgraded both growth and inflation risks quite so starkly.”

The Fed has maintained its patient approach despite repeated calls from the US president for it to cut borrowing costs. Trump has also launched attacks on Powell, labelling him “Mr Too Late”.

The May decision followed the publication of stronger than expected non-farm payrolls figures for April, showing the US labour market remains on a solid footing despite the uncertainty triggered by the Trump administration’s trade policies. 

The jobs figures led many economists to push back their expectations of the first Fed rate cut until September at the earliest.

There was no immediate change in rate expectations following Wednesday’s Fed decision.

US Treasury yields, which move inversely to price, fell to their lowest levels of the day. The 10-year yield, which moves with growth expectations, dipped by 0.03 percentage points to 4.28 per cent. US stocks were trading roughly flat on the day.

Trump announced sweeping tariffs on April 2, which if enacted would raise US trade barriers to their highest levels in more than a century. Most were paused for 90 days a week later.

While GDP contracted for the first time in three years in the first quarter, officials put that down to distortions triggered by the tariffs as US businesses look to get ahead of the levies by importing goods. 

“It’s a little bit confusing . . . but I think we understand what’s going on and it’s really not going to change things for us,” Powell said.