The Federal Reserve left interest rates unchanged for the second straight meeting, keeping the benchmark policy rate between 4.25 percent and 4.5 percent in March.
Investors widely expected that the U.S. central bank would keep its easing cycle on hold. Monetary authorities have indicated that interest rates will likely remain higher for longer, as they assess inflation progress and wait for further clarity surrounding the new administration’s policy changes.
Recent data suggest that economic activity is still expanding, and the labor market remains solid.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the rate-setting Federal Open Market Committee said in a statement. “Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate.”
The Fed maintains a dual mandate of full employment and price stability.
According to the updated Summary of Economic Projections, monetary policymakers still anticipate rate cuts this year, leaving its year-end median policy rate intact at 3.9 percent.
Officials downgraded the economic outlook, forecasting 1.7 percent GDP growth from the 2.1 percent estimate in the December quarterly survey. The Fed also revised its growth forecasts for 2026 and 2027 to 1.8 percent.
The unemployment rate was adjusted slightly higher for the year at 4.4 percent from 4.3 percent.
Inflation is expected to be higher than initially projected. The Summary of Economic Projections predicts that the personal consumption expenditure (PCE) price index, the central bank’s preferred inflation measure, will be 2.7 percent. This is up from the December projection of 2.5 percent.
Core PCE, which omits volatile energy and food prices, was revised to 2.8 percent from 2.5 percent.
“The Federal Reserve held rates steady, but with rising uncertainty about the economy, they expect slower growth, an uptick in inflation, and less aggressive rate cuts,” Greg McBride, chief financial analyst at Bankrate, told The Epoch Times in a statement.
“Compared to December, the broad consensus still calls for two rate cuts, but more are expecting only one or none at all.”
In addition to the interest rate decision, the Fed will scale back its balance sheet reduction efforts. Policymakers confirmed that they will allow $5 billion in Treasury securities to roll off the balance sheet each month, down from $25 billion. However, the central bank will keep the $85 billion limit on mortgage-backed securities intact.
The plan will start in April.
Since initiating its quantitative tightening campaign in March 2022, the Fed has reduced its bloated pandemic-era balance sheet by approximately $1.8 trillion to about $6.9 trillion.
Recession, Tariff Talk at the Fed
Wall Street added to its gains during Fed Chair Jerome Powell’s post-meeting news conference.Investors ostensibly cheered when Powell dismissed recession concerns and signaled that policymakers are keeping their two rate-cut projections intact.
While economic forecasters have lifted the odds of a recession, Powell noted that a downturn is unlikely.
“We don’t make such a forecast,” he said. “If you look at outside forecasts, forecasters have generally raised ... their possibility of a recession somewhat, but still at a relatively moderate level.”
The possibility has “moved up, but it’s not high,” he said.
Tariffs were a considerable focus for reporters, as consumers’ inflation forecasts have rocketed over the past two months.
These surveys reveal that the upward trajectory in the inflation outlook can be attributed to tariffs, according to Powell.
“Clearly some of it, a good part of it, is coming from tariffs,” he said.
In addition, the Fed chief stated that deteriorating consumer sentiment results from past price inflation. And while consumers have signaled a more downbeat view of the broader economy, this attitude is not translating to the hard data.
“I would tell people that the economy seems to be ... healthy,” Powell told reporters.
“We understand that that sentiment is quite negative at this time, and that probably has to do with turmoil at the beginning of an administration,” he said. “It’s making big changes in areas of policy, and that’s probably part of it.”
Meanwhile, according to Powell, the challenge for policymakers will be separating tariff-fueled inflation from nontariff inflation.
“There will be a lot of work done in coming months to try to trace all that through,” he said. “But ultimately, though, it’s too soon to be seeing significant effects in economic data.”
Grappling With Stagflation Threats
Heading into the March policy meeting, a plethora of Fed officials espoused the same message: The U.S. central bank will likely keep interest rates higher for longer.Fed Chair Jerome Powell has regularly presented the public with the institution’s conundrum. Monetary policymakers risk reigniting inflationary pressures if the Fed eases policy restraint too much and too quickly. However, keeping interest rates too high for too long could affect economic growth prospects.
“The cost of being cautious is very, very low,” Powell said during the question-and-answer session following his prepared remarks. “The economy is fine. It doesn’t need us to do anything, really, so we can wait and we should wait.”
Talk of reliving the 1970s through stagflation—a toxic economic combination of elevated inflation, increasing unemployment, and slowing growth—has traversed through Wall Street and Main Street.
The labor market remains intact, with a treasure trove of data signaling little volatility on the jobs front.
In the end, Powell dismissed growing 1970s-style stagflation worries.
“I wouldn’t say we’re in a situation that’s remotely comparable to that,” he told reporters.
