The Federal Reserve held interest rates steady Wednesday for the second meeting in a row and maintained a prior prediction for two rate cuts at some point this year.

What the central bank did change, however, was its outlook on inflation and economic growth amid uncertainties stemming from President Trump's plans for an aggressive slate of new tariffs on top of new duties already imposed on China, Canada, and Mexico.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments

Fed officials now see inflation staying higher this year than previously estimated and economic growth going lower than prior predictions.

Policymakers estimate that the core Personal Consumption Expenditures (PCE) measure of inflation will be 2.8% at the end of 2025, compared with 2.5% previously.

And the US economy is now projected to grow at an annualized pace of 1.7% instead of 2.1%. The unemployment rate is seen edging up to 4.4% from 4.3% previously.

"There are so many things we don’t know," Fed Chair Jerome Powell said at a press conference Wednesday, and "uncertainty is remarkably high."

But what is known about tariffs is that they "tend to bring growth down and they tend to bring inflation up."

He acknowledged that the new Fed view on inflation this year can be attributed at least in "good part" to the tariffs, but his "base case" is that the inflationary effect from tariffs will be transitory.

Read more: What Trump's tariffs mean for the economy and your wallet

While progress on bringing inflation down to the Fed’s goal "is probably delayed for the time being," Powell noted that officials do see the goal still being reached by 2027.

Powell has also consistently stressed a wait-and-see approach to assessing the economic impact of policy changes and did the same Wednesday at his press conference, telling reporters that the Fed is focusing on "separating the signal from the noise" when evaluating how Trump's policies may affect the economic outlook.

"We do not need to be in a hurry to adjust our policy stance," Powell said.

The Fed has now held borrowing costs steady for two consecutive meetings, maintaining its benchmark interest rate in the range of 4.25%-4.5%. The pause follows three consecutive rate cuts in late 2024.

The central bank also announced it will begin slowing the pace of Treasurys being drawn off its balance sheet starting in April, reducing the amount of Treasurys allowed to roll off from $25 billion to $5 billion. The Fed, however, will maintain the pace of mortgage-backed securities being drawn down by $35 billion per month.

Fed governor Chris Waller dissented in Wednesday's decision because he would have preferred to continue the current pace of decline in letting bonds mature off the Fed's balance sheet. He agreed with the decision to hold rates steady.

Waller and his Fed colleagues on Wednesday kept their median estimate first made in December for two rate cuts in 2025, even as a much-studied "dot plot" showed a large number of policymakers favored fewer or no cuts.

Nine officials see two cuts, while four officials see one cut and four see no cuts.

The biggest challenge for the Fed going forward may be how to balance both sides of their mandate — maximum employment and price stabilities — as uncertainties mount about both of those goals.

One large concern for investors is the possibility of a scenario in which growth stalls, inflation persists, and unemployment rises — a dynamic known as stagflation that was last seen in the US during the 1970s.

On the inflation front, the next reading of the Fed’s preferred inflation gauge of core PCE could reveal some new complications.

When it is released next week, the metric is likely to show the gauge remained elevated in February, rising to 2.7% from the 2.6% seen in January.

That is still far from the Fed’s eventual goal of 2%.

He acknowledged that consumer surveys show short-term worries about inflation but said that the relationship between survey data and hard data "isn’t tight." Long-run inflation expectations "really haven’t moved."

"We will be watching very carefully for signs of weakness in the real data."

He acknowledged that "it’s going to be a challenge" for the central bank to navigate the coming period as new policies from the Trump administration are put in place.

It’s “really hard to know how this will work out,” he added.

Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments