Federal Reserve officials on March 19 held interest rates steady for the second straight meeting amid uncertainty in the markets and data showing inflation still above the Fed’s 2% target.
The Federal Open Market Committee left the federal funds rate unchanged at a range of 4.25% to 4.5% following its two-day meeting. The committee closed out 2024 with three successive rate cuts — quarter-point cuts in December and November, and a half-point reduction in September before implementing a pause in January.
Looking ahead, committee members signaled two quarter-point rate cuts in 2025. The committee’s median projection for the federal funds rate at the end of 2025 is 3.9%, according to forecasts released March 19, and 3.4% at the end up 2026, the same levels it projected in December.
“We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity,” Fed Chair Jerome H. Powell said at a March 19 news conference.
Powell reiterated that President Donald Trump’s tariff policy will likely increase inflation in the short term, but it’s difficult to determine by how much.
“The new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy and regulations,” Powell said. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.”
He added, “While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high. As we parse the incoming information, we’re focused on separating the signal from the noise as the outlook evolves.”
The Bureau of Labor Statistics reported March 12 that the consumer price index rose an annualized 2.8% in February, below the 3% figure recorded in January.
Separately, core personal consumption expenditures, or core PCE, the Fed’s preferred inflation gauge, rose 2.6% year-over-year in January, down from the 2.9% year-over-year increase in December.
The committee's median projection for core PCE inflation by the end of 2025 is now 2.8%, up from 2.5% in December.
Committee members are also forecasting slower growth this year. The median projection for real gross domestic product is now 1.7% at the end of 2025, down from a projected 2.1% in December.
Additionally, the Fed announced it will slow the pace of its balance sheet reduction. The committee said it will lower the monthly redemption cap on Treasury securities to $5 billion from $25 billion but will maintain the monthly redemption cap on agency debt and mortgage-backed securities at $35 billion.
The central bank’s balance sheet is currently $6.8 trillion, down from about $9 trillion when the reduction began in June 2022 to combat inflation.
Dan Siluk, head of global short duration and liquidity and a portfolio manager at Janus Henderson Investors, said in a statement that the Fed struck a slightly less hawkish tone than many on Wall Street had anticipated.
“Amid persistent inflation and mounting economic uncertainties, the decision to maintain current interest rates while subtly adjusting its approach to securities holdings signals a cautious yet flexible stance,” Siluk said. “It conveys a clear message to the markets: Despite the challenges, the Fed currently lacks the compelling data needed to adjust policy settings.”
The Fed’s next meeting is May 6-7.
