Fed holds interest rates steady, still sees additional cuts coming
The Federal Reserve in a closely watched decision Wednesday held the line on benchmark interest rates though still indicated that reductions are likely later in the year.
Faced with pressing concerns over the impact tariffs will have on a slowing economy, the rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. Markets had been pricing in virtually zero chance of a move at this week’s two-day policy meeting.
Along with the decision, officials updated their rate and economic projections for this year and through 2027 and altered the pace at which they are reducing bond holdings.
Despite the uncertain impact of President Donald Trump’s tariffs as well as an ambitious fiscal policy of tax breaks and deregulation, officials said they still see another half percentage point of rate cuts through 2025. The Fed prefers to move in quarter percentage point increments, so that would mean two cuts this year.
In its post-meeting statement, the FOMC noted an elevated level of ambiguity surrounding the current climate.
“Uncertainty around the economic outlook has increased,” the document stated. “The Committee is attentive to the risks to both sides of its dual mandate.
The Fed is charged with the twin-goals of maintaining full employment and low prices.
The committee downgraded its collective outlook for economic growth and gave a bump higher to its inflation projection. Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December. On inflation, core prices are expected to grow at a 2.8% annual pace, up 0.3 percentage point from the previous estimate.
According to the “dot plot” of officials’ rate expectations, the view is turning somewhat more hawkish on rates from December. At the previous meeting, just one participant saw no rate changes in 2025, compared to four now.
Source: CNBC
