WASHINGTON – The Federal Reserve held interest rates steady on Wednesday but said the risks of higher inflation and unemployment had risen, further clouding the US economic outlook as its policymakers grapple with the impact of President Donald Trump’s tariffs.

At this point, Fed Chair Jerome Powell said, it isn’t clear if the economy will continue its steady pace of growth, or wilt under mounting uncertainty and a possible coming spike in inflation.

With so much unsettled about what Trump will ultimately decide and what of that survives possible court and political battles, “the scope, the scale, the persistence of those effects are very, very uncertain,” Powell said in a press conference at the end of a two-day policy meeting. “So it’s not at all clear what the appropriate response for monetary policy is at this time … It’s really not at all clear what it is we should do.”

“I don’t think we can say which way this will shake out.”

It was Powell’s subtle way of saying the U.S. central bank, a key actor in shaping the economy, was effectively sidelined until Trump’s sweeping policy agenda takes full effect.

The Fed’s policy statement, which held the benchmark overnight rate steady in the 4.25%-4.50% range, noted that since the central bank’s last meeting in March “uncertainty about the economic outlook has increased further,” and that risks were increasing that both inflation and unemployment could increase.

Thomas Simons, chief U.S. economist at Jefferies, said the language downplayed just how much disruption had occurred since the Fed’s March 18-19 meeting, and how unpredictable the outlook had become.

“All of the ‘Liberation Day’ tariff news, the April 9 announcement of a 90-day delay, the back and forth on trade deals and tariff exemptions in the headlines, and the resultant negativity expressed in business and consumer surveys make it impossible to judge what the economic outlook is, let alone whether the skew of risks around it has changed,” Simons wrote, calling Powell “predictably noncommittal” given the situation.

RISKS TO DUAL MANDATE

The Fed’s statement, and much of Powell’s comments to reporters as well, vouched for the economy’s continued resilience, with job gains continuing and the economy still growing at a “solid pace.” The recently reported decline in gross domestic productin the first quarter, Powell said, was skewed by a record rush of imports as businesses and households tried to front-run expected import taxes, with measures of domestic demand still growing.

But even that data demonstrated the dilemma facing the Fed. The rush of front-loading to buy goods and stock shelves won’t likely be repeated, and it is unclear whether underneath it all demand and investment are starting to weaken – and how that will eventually express itself in “hard” data on inflation and jobs.

The Fed’s own “Beige Book” of anecdotal reports about the economy recently gave a dour picture of suspended business deals, falling demand, and rising prices.

“Businesses and households are concerned … and postponing economic decisions of various kinds,” Powell said. “If that continues and nothing happens to alleviate those concerns, you would expect that to show up in economic data.”

The Fed can’t respond, however, until it is clear which way the economy pivots, and how it assesses the risks to its two goals of holding inflation to 2% and sustaining maximum employment.

“The current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments,” Powell said, affirming a wait-and-see approach that has become the central bank’s calling card in the first months of the Trump administration.

U.S. stock prices extended gains after the release of the Fed’s unanimous policy decision and ended higher on the day. Treasury yields fell, while the dollar .DXY gained against a basket of currencies.

‘HOLDING PATTERN’

The direction of Fed policy will depend on which of the job and inflation risks develop, or, in the more difficult outcome, whether inflation and unemployment increase together and force the central bank to choose which risk is more important to try to offset with monetary policy.

A weaker job market would typically strengthen the case for rate cuts; higher inflation would call for monetary policy to remain tight.

“For the time being the Fed remains in a holding pattern as it waits for uncertainty to clear,” said Ashish Shah, chief investment officer of public investing at Goldman Sachs Asset Management, adding that “recent better-than-feared jobs data has supported the Fed’s on-hold stance, and the onus is on the labor market to weaken sufficiently to bring a resumption of its easing cycle.”

The Fed’s policy rate has been unchanged since December as officials struggle to estimate the impact of Trump’s tariffs, which have raised the prospect of higher inflation and slower economic growth this year.

When policymakers last updated their economic and policy projections in March, they anticipated reducing the benchmark rate by half a percentage point by the end of this year. — Reuters

VATICAN CITY — Black smoke billowed from the chimney of the Sistine Chapel on Wednesday evening, signalling an inconclusive first vote by cardinals locked in the Sistine Chapel in a conclave to elect a new pope to guide the Roman Catholic Church.

Thousands of faithful gathered in St. Peter’s Square waiting for smoke to pour from a narrow flue on the roof of the chapel at the end of a day rich in ritual and pageantry, with prelates praying for divine guidance in their secret ballot.

The crowds had to be patient as it took longer than expected for the smoke to appear, more than three hours after the start of the conclave. This was an hour more than it took for smoke to be seen after the first vote in the 2013 conclave that picked the late Pope Francis.

When a pope is chosen, white smoke will emerge, but this had not been expected on Wednesday – a pontiff has not been picked on the first day of a conclave in modern times.
However, some cardinals said this week that they hoped to wrap things up by Thursday or Friday to show the Church can remain unified after the often divisive, 12-year papacy of Francis, who died last month.

The 133 cardinal electors, who are all aged under 80, will spend the night secluded in one of two Vatican guesthouses – where they can continue their deliberations in a more informal setting before returning to the chapel on Thursday morning.

Following Wednesday’s single round of voting, the red-hatted “princes of the Church” will hold two votes in the morning session and two in the afternoon, continuing in coming days until one man has secured a majority of at least two-thirds – 89 cardinals this time around.

Their only communication with the outside world will be the smoke from the chimney as they burn their completed ballot papers mixed with special chemicals – black when a voting session ends with no result, white when a pontiff is elected.

Modern papal conclaves are typically short. The 2013 conclave lasted just two days, likewise in 2005 when his predecessor, Benedict XVI, was picked.

In recent days, cardinals have offered different assessments of what they are looking for in the next pontiff who will lead the 1.4-billion-member Church.

While some have called for continuity with Francis’ vision of greater openness and reform, others have said they want to turn the clock back and embrace old traditions. Many have indicated they want a more predictable, measured pontificate.

‘GOOD OF THE CHURCH’

In a sermon ahead of the conclave, Italian Cardinal Giovanni Battista Re, who at 91 is too old to take part in the vote, told his fellow prelates they must set aside “every personal consideration” in choosing the new pontiff and keep in mind “only … the good of the Church and of humanity”.

He also suggested the next pope had to respect diversity within the Church. “Unity does not mean uniformity, but a firm and profound communion in diversity,” he said.

Some ultra-conservatives had branded Francis as a heretic, accusing him of being too welcoming to the LGBT community, too accommodating to Protestants and Muslims and too open on a range of topics, including offering communion for the divorced.

No clear favorite has emerged, although Italian Cardinal Pietro Parolin and Filipino Cardinal Luis Antonio Tagle are considered the front-runners.

However, if it quickly becomes obvious that neither can win, votes are likely to shift to other contenders, with the electors possibly coalescing around geography, doctrinal affinity or common languages.

Among other potential candidates are France’s Jean-Marc Aveline, Hungary’s Peter Erdo, American Robert Prevost and Italy’s Pierbattista Pizzaballa.

A record 133 cardinals from 70 countries entered the Sistine Chapel, up from 115 from 48 nations in the last conclave in 2013 – growth that reflects efforts by Francis during his 12-year reign to extend the geographical reach of the Church.

Among their considerations will be whether they should seek a pope from the global South where congregations are growing, as they did in 2013 with Francis, from Argentina, or hand back the reins to Europe, or even pick a first U.S. pope.

Latin chants and organ music accompanied the cardinals as they processed into the frescoed Sistine Chapel before the conclave began, with Michelangelo’s depiction of Christ delivering the Last Judgment dominating the 500-year-old room.

They laid their hands on the Gospels, taking a vow of secrecy not to divulge anything about their gathering.

Archbishop Diego Ravelli, the Vatican’s master of ceremonies, then pronounced the Latin command “Extra omnes!” (Everyone out!) telling those not involved in the gathering to leave the room, with the chapel’s heavy wooden doors slamming shut on the outside world.

There is not meant to be any discussion in the voting sessions but past experience suggests there will be plenty of covert campaigning during breaks and meals as the names of “papabili” rise and fall in successive ballots. — Reuters