Federal Reserve March Policy Meeting—Key Takeaways

Tariffs, inflation, and recession were the central themes of the March policy meeting.

Federal Reserve Chairman Jerome Powell delivers remarks at a news conference at the Federal Reserve in Washington on March 19, 2025. Kevin Dietsch/Getty Images

The Federal Reserve concluded its two-day policy meeting on March 19, leaving interest rates unchanged for the second straight time.

For investors, the decision to keep the policy rate unchanged between 4.25 percent and 4.5 percent was widely expected.

Financial markets instead focused on the U.S. central bank’s economic and policy projections and what Fed Chair Jerome Powell said at the post-meeting press conference.

“Overall, the meeting offered some insight into how the Fed is thinking about the current state of the economy but offered little change in terms of how they are going to address it,” said Charlie Ripley, the senior investment strategist for Allianz Investment Management, in a note emailed to The Epoch Times.

Here are the key takeaways from the March policy meeting.

Summary of Economic Projections

The Summary of Economic Projections is a quarterly survey completed by Federal Reserve Board members and Fed bank presidents. It highlights where officials think the economy and monetary policy will be at the end of the year.

In the updated summary, central bank officials left their interest rate forecasts intact. Authorities still believe the Fed will follow through on two rate cuts this year, trimming the benchmark federal funds rate to a median of 3.9 percent. Additionally, they are predicting another two cuts in 2026 and 2027, with the longer-run median policy rate falling to 3.1 percent.

Powell reiterated that the central bank is comfortable leaving interest rates higher for longer if the U.S. economy continues to perform well.

“If the economy remains strong, and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer,” Powell said on March 19.

“If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”

But while the Fed signaled that the rate-cutting campaign could be restarted this year, the institution thinks inflation will be higher than initially estimated.

The Fed’s preferred personal consumption expenditure (PCE) price index was revised to 2.7 percent from 2.5 percent. Core PCE, which strips volatile energy and food prices, was also changed to 2.8 percent from 2.5 percent.

“You'll see that there’s no further progress on core inflation this year. We’re kind of flatlining, going sideways,” Powell told reporters. “We don’t ask people to write down how much of this is from tariffs and how much of it is not, but some of it is from tariffs. We know that tariffs are coming in.”

Economic growth expectations were downgraded. The change in real GDP growth was adjusted lower to 1.7 percent from the December projection of 2.1 percent. The 2026 and 2027 expansions were revised lower to 1.8 percent from 2 percent and 1.9 percent, respectively.

Forecasts surrounding the unemployment rate were little changed.

Tariffs and ‘Transitory’ Inflation

Tariffs and their possible impacts on the U.S. economy were the central theme during the March 19 press conference.

Various consumer surveys have recently reported a revival of short-term inflation fears among businesses and consumers. According to Powell, tariffs are a “good part” of higher inflation expectations.

“Some of it, the answer is clearly some of it, a good part of it, is coming from tariffs,” Powell said. “But we’ll be working with other forecasters to separate nontariff inflation, tariff inflation.”

Shipping containers are seen at the port of Oakland as trade tensions rise over U.S. tariffs on March 6, 2025. Carlos Barria/Reuters

Powell noted that while the Fed is inching closer to achieving its 2 percent inflation target, the new administration’s tariffs could postpone progress on inflation.

“I do think with the arrival of the tariff inflation, further progress may be delayed,” Powell said.

Still, if inflation persists in 2025, he indicated it will unlikely continue in 2026 or 2027.

“It can be the case that it’s appropriate sometimes to look through inflation, if it’s going to go away quickly, without action by us, if it’s transitory,” Powell said. “That can be the case in the case of tariff inflation. I think that would depend on the tariff inflation moving through fairly quickly and, critically, as well on inflation expectations being well anchored.”

While near-term inflation forecasts have spiked, market-based long-term inflation expectations are well-anchored.

Because monetary policy is in a solid position, Powell thinks the Fed can respond to evolving situations. At the same time, policymakers will have to be patient in determining how much the White House’s policy changes, from trade to immigration, are affecting economic activity, business conditions, and inflation trends.

“We have tariffs coming in. We don’t know how big, what speed,” he said. “So many things we don’t know, but we kind of know they’re going to be tariffs, and they tend to bring growth down, they tend to bring inflation up in the first instance.”

The Fed head added that it could be challenging to capture tariff-driven inflation, alluding to the initial round of tariffs during President Donald Trump’s first term. The administration slapped levies on washing machines, which sent prices higher, but dryers also increased in cost, Powell said.

“Things happen very indirectly, and so there'll be a lot of work done in coming months to try to trace all that through,” he stated. “But ultimately, though, it’s too soon to be seeing significant effects in economic data.”

Recession Talk at the Fed

Worries about an economic downturn have gripped Wall Street.

The UCLA Anderson School of Management recently announced a “Recession Watch.” The Atlanta Fed is forecasting an import-driven first-quarter contraction. Goldman Sachs lifted its recession odds.

Despite these developments, Powell thinks a recession is unlikely.

“We don’t make this forecast. If you look at outside forecasts, forecasters have generally raised their possibility of a recession somewhat, but still at a relatively moderate level,” he said.

He noted that over the years, there has usually been a one-in-four chance of a recession that did not materialize.

When asked about a possible 1970s-style stagflation—an economic climate of high inflation, rising unemployment, and stagnating growth—Powell dismissed talk that the United States could repeat that decade.

“I wouldn’t say we’re in a situation that’s remotely comparable to that,” the Fed Chair said.

Tapering the Balance Sheet Tapering

Next month, the Federal Reserve will taper its balance sheet reduction initiative.

A post-meeting statement from the FOMC confirmed that officials will only allow $5 billion in Treasury securities to roll off the balance sheet each month, down from the $25 billion. The Fed will still keep the paring down of mortgage-backed securities at $85 billion per month.

This is the second time the Fed has slowed the pace of its quantitative tightening efforts.

“We really came to the view that this was a good time to make the move that we made,” Powell told the press, adding that the central bank received support for going slower for longer.

Fed Gov. Christopher Waller, while supporting holding rates steady, was the lone dissent vote against the body’s decision to reduce its balance sheet runoff.

Christopher Waller testifies before the Senate Banking, Housing, and Urban Affairs Committee during a hearing on his nomination to be member-designate on the Federal Reserve Board of Governors, in Washington, on Feb. 13, 2020. Sarah Silbiger/Getty Images

At the onset of the coronavirus pandemic, the Fed dramatically expanded its balance sheet to nearly $9 trillion. Since March 2022, the institution has reduced its holdings by about $2 trillion.

Flying High in April, Shot Down in May

Could the Fed pull the trigger on a May rate cut?

Powell reiterated that the Federal Reserve is not in a hurry to take action as officials wait for further clarity on the policy front.

This response was different from previous news conferences when he would say that he and his colleagues have neither talked about nor made decisions about future meetings.

The futures market is betting that the easing cycle, launched in September, will be put on pause again in May.

According to the CME FedWatch Tool, traders anticipate the next quarter-point rate cut in June.

Ripley noted that the March meeting emphasized the Fed’s policy balancing act.

“While the outcome of this meeting was broadly in line with market participant expectations, it clearly shows the conundrum the Fed has in balancing growth and inflation expectations,” he said.

“With a sit on your hands policy approach in play, this Fed meeting showcased the difficulty in making decisions in periods of uncertainty and acknowledged that perhaps the best action is no action at all.”

The next two-day FOMC meeting will take place on May 6 and 7.