The Federal Reserve kept its benchmark interest rate unchanged at 4.25 per cent-4.50 per cent today, as expected, but its economic projections have drawn scrutiny amid US president Donald Trump’s evolving trade and fiscal policies. However, investors were pleased that the Fed’s move was less hawkish than they feared, which led to a stock market rally.

Since returning to office, Mr Trump has reintroduced tariffs on Chinese imports, hinted at broader taxation on key trading partners, tightened immigration policies and initiated federal layoffs, creating market volatility.

Alongside the decision, officials released updated projections for interest rates and economic growth through 2027 and adjusted the pace at which they are reducing bond holdings.

Last year, the Fed cut its benchmark rate by a full percentage point to stabilise growth. Now, its updated projections reveal whether it expects slower economic expansion or rising inflation.

According to Romain Fournier, of MarketScreener: "Economists are concerned about the potential economic impact of Trump's policies, which could lead to higher unemployment and inflation."

February’s jobless rate rose slightly to 4.1 per cent, with 151,000 jobs added, while inflation remains above the Fed’s 2 per cent target. The markets anticipate two quarter-point rate cuts by year-end, though policymakers are divided on the outlook.

The Fed now expects the economy to slow, with unemployment rising to 4.4 per cent and inflation reaching 2.7 per cent by year-end.

"Uncertainty around the economic outlook has increased," the Fed stated after its two-day meeting, as reported by the Associated Press.

Meanwhile, global events are further rattling markets. "Yesterday, the markets were shaken by the sudden end of a Middle East truce as Israeli strikes on Gaza resumed," Mr Fournier reported.

A phone call between Mr Trump and Russian president Vladimir Putin led only to a temporary suspension of strikes on Ukraine’s energy infrastructure, dimming hopes for a ceasefire. Trade talks between the US and its allies have also stalled, adding to market jitters.