WASHINGTON, D.C.: The U.S. economy is performing reasonably well, but Federal Reserve Chair Jerome Powell faces a difficult decision as the central bank wraps up its two-day meeting this week.

Despite steady progress in lowering inflation and a low unemployment rate of 4.2 percent, the future is clouded by uncertainty, particularly due to President Donald Trump’s new tariffs, which could push inflation higher while also slowing economic growth.

Given this mixed picture, the Fed is expected to keep its benchmark interest rate unchanged at 4.4 percent for now. Alongside its decision, the Fed will also release updated economic forecasts, which may show inflation rising in the second half of the year and a slight uptick in unemployment. Many economists still expect the Fed to cut interest rates twice before the year ends.

Usually, higher inflation calls for steady or higher rates, while rising unemployment suggests cutting them. Since the economy seems to be pulling in both directions, Powell and other Fed officials have said they will wait for more clarity before making any moves.

Economist Diane Swonk of KPMG called the current moment an “uncomfortable purgatory.” Without the uncertainty caused by tariffs, she noted, the Fed might already have started cutting rates.

Meanwhile, the White House is putting public pressure on the Fed to lower rates. Trump has personally criticized Powell, calling him a “numbskull” for not cutting rates. Other officials, including Vice President JD Vance and Commerce Secretary Howard Lutnick, have echoed these calls. Trump argues that a rate cut would give the economy a huge boost and also help the government save money on interest payments for its growing debt.

When the Fed cuts rates, it generally reduces borrowing costs for consumers and businesses, making loans cheaper. However, long-term interest rates — like those for mortgages — are also influenced by investors’ expectations. If investors think inflation will rise, they may demand higher returns, keeping borrowing costs elevated even if the Fed lowers its rate.

So far, inflation is still low. The Fed’s preferred measure shows it at 2.1 percent, close to the central bank’s target of two percent. With inflation this low, some economists believe the Fed’s rate should be lower — around the “neutral rate” of 3 percent — because the economy doesn’t need cooling.

A recent survey of former Fed officials found that most expect just one rate cut this year. They remain cautious, fearing inflation could rise again.

Goldman Sachs economists predict inflation could reach 3.6 percent by December, but believe the increase will be short-lived. They also expect a weakening economy, with rising unemployment and lower consumer spending, which could keep inflation under control.

In the end, the Fed is likely to wait for more data before acting.

Michael Gapen, chief U.S. economist at Morgan Stanley, said in a note this week that the Fed “will need several months to assess the effects of policy changes, believing that ‘later and correct is better than sooner and wrong.'”