"Recent indicators suggest that growth of economic activity moderated in the first half of the year," the Fed said in a statement after a meeting on Wednesday. “Labor market conditions remain solid. Inflation remains somewhat elevated," it added. 

In June, the central bank held a more optimistic view, saying the economy "continues to expand at a solid pace."

The Fed has been preparing for months for the possibility of rising unemployment and inflation due to the Trump Administration’s sweeping tariff policy. Data released on Wednesday said the US economy grew at a healthy 3% annual rate in the second quarter, after shrinking 0.5% in Q1.

The growth was largely due to businesses rushing to stock up on foreign goods and materials before new duties took effect. However, consumer spending has grown for several quarters at the slowest pace seen since the beginning of the COVID-19 pandemic.