WASHINGTON – In a highly anticipated decision, the Federal Reserve chose to maintain its benchmark interest rate at its current range of 4.25%-4.5% during its latest policy meeting. However, officials indicated that rate reductions are still expected later this year.
Fed’s Economic Outlook and Interest Rate Projections
With concerns over the impact of tariffs on an already slowing economy, the Federal Open Market Committee (FOMC) opted to keep borrowing rates unchanged. Markets had widely predicted no immediate changes during this week’s meeting.
Despite economic uncertainties, the Fed projects a total of 0.5% in rate cuts through 2025, which translates to two quarter-point reductions. The latest dot plot suggests a slightly more hawkish stance, with four officials now seeing no rate cuts in 2025, up from just one in December 2024.
Alongside its interest rate decision, the Fed revised its economic projections, forecasting 1.7% GDP growth for 2025—0.4% lower than its previous estimate. Inflation is now expected to rise at an annual pace of 2.8%, reflecting a 0.3 percentage point increase from earlier predictions.
Adjustments to the Fed’s Balance Sheet Strategy
In addition to rate policy, the Fed announced a slowdown in its quantitative tightening (QT) program, further scaling back bond reductions. Moving forward, only $5 billion in Treasury proceeds will be allowed to roll off per month, down from the previous $25 billion cap. Meanwhile, the $35 billion limit on mortgage-backed securities remains unchanged.
Fed Governor Christopher Waller was the sole dissenting vote, advocating for the QT program to continue at its prior pace, despite agreeing to hold rates steady.
Market and Economic Reactions
The Fed’s stance comes amid a volatile start to President Donald Trump’s second term, where tariffs on steel, aluminum, and various goods have created market uncertainty. Financial markets have responded cautiously, with major indices fluctuating in and out of correction territory.
Meanwhile, economic indicators show mixed signals. Retail spending in February grew slower than expected, yet consumer confidence remains resilient. The labor market also displayed signs of weakness, as nonfarm payrolls expanded at a slower pace and a broad measure of unemployment hit its highest level since October 2021.
Despite these challenges, Bank of America CEO Brian Moynihan remains optimistic, stating that consumer spending remains strong, with BofA economists forecasting 2% GDP growth in 2025.
As the Fed monitors evolving economic conditions, investors and policymakers alike will be watching closely for any further adjustments to monetary policy and tariff-related developments.
For more updates please visit https://zamaexpress.com.