The Federal Reserve kept the federal funds rate unchanged at 4.25%-4.5% during its March 2025 meeting, maintaining the pause in its rate-cut cycle that began in January and aligning with market expectations.
Federal Reserve keeps rates steady
Policymakers acknowledged that uncertainty around the economic outlook has increased, citing persistent inflationary pressures, slowing global growth, and ongoing geopolitical risks. However, the Fed reaffirmed its projection of reducing interest rates by 50 basis points this year, unchanged from its December forecast, signaling a cautious approach to monetary easing.
Economic growth projections were revised downward, with GDP expected to expand by 1.7% in 2025, down from the 2.1% forecast in December. Growth forecasts for 2026 and 2027 were also trimmed slightly, to 1.8% from 2% and 1.8% from 1.9%, respectively. The downward revisions suggest the Fed sees a more subdued expansion in the coming years, possibly reflecting the delayed effects of tight monetary policy and weaker consumer demand.
New outlook provided
At the same time, inflation expectations were adjusted upward, highlighting the Fed’s ongoing concerns about price stability. The PCE inflation forecast for 2025 was raised to 2.7% from 2.5%, while the estimate for 2026 ticked up to 2.2% from 2.1%. However, the Fed maintained its 2027 forecast at 2%, reinforcing its long-term goal of price stability. Markets reacted cautiously to the announcement, with Treasury yields fluctuating as traders reassessed expectations for the pace of rate cuts. Equity markets initially dipped before stabilizing, while the US dollar strengthened slightly amid lingering uncertainty over the Fed’s policy trajectory. Investors will closely watch upcoming economic reports and Fed commentary for further clues on the timing and magnitude of rate adjustments in the months ahead.
