The Federal Reserve has kept its benchmark interest rate unchanged, maintaining its target range at 4.25%-4.5% for the fourth consecutive meeting.
In its post-meeting statement, the Federal Open Market Committee (FOMC) acknowledged that uncertainty has increased, particularly due to the impact of President Donald Trump’s tariffs and broader economic conditions. The Fed also revised its economic projections, lowering its growth forecast for 2024 to 1.7%—down from 2.1% in December—while slightly increasing its inflation outlook to 2.8%.
Rate cuts still expected, but no rush
Fed Chair Jerome Powell reiterated that the central bank remains cautious, stating, “If the economy remains strong and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer.” However, he acknowledged that if inflation declines faster or the labor market weakens unexpectedly, the Fed would be prepared to ease policy accordingly.
The “dot plot” of interest rate projections suggests most policymakers still anticipate two quarter-point cuts by the end of 2025, bringing the rate closer to 4%. However, an increasing number of Fed officials now foresee fewer or no cuts this year, reflecting a more hawkish stance on inflation risks.
Market reaction and economic concerns
Investors reacted positively to the Fed’s decision, with the Dow Jones Industrial Average rising over 400 points following the announcement. However, stagflation fears—a combination of slowing growth and higher inflation—have started to surface among analysts.
Several key indicators point to economic softening:
- Consumer spending has moderated.
- Business sentiment has declined.
- The unemployment rate is projected to rise to 4.4% by year’s end.
Additionally, some Wall Street analysts have raised their recession forecasts. JPMorgan now estimates a 40% chance of a recession this year, citing the impact of tariffs and other Trump administration policies.
Scaling back “quantitative tightening”
Alongside the rate decision, the Fed announced a further reduction in its balance sheet runoff. It will now allow only $5 billion in maturing Treasury securities to roll off each month, down from $25 billion. However, its $35 billion cap on mortgage-backed securities remains unchanged.
One dissenting vote
The Fed’s decision was not unanimous. Governor Christopher Waller dissented, arguing that the Fed should continue reducing its balance sheet at the previous pace.
