As widely expected, the Federal Reserve’s interest rate policy meeting ending Wednesday afternoon did not bring the immediate rate cuts President Donald Trump hopes to see, as his tariffs pose a fresh threat to Fed’s efforts to curb a surge in consumer prices.
At the second of the Federal Open Market Committee’s eight 2025 meetings, concluding Wednesday, the panel announced it would keep the target federal funds rate the same at 4.25% to 4.5%, extending a pause that has been in place since January following a series of cuts in late 2024.
Federal Reserve’s Chair Jerome Powell and his colleagues in recent weeks have advocated a patient approach in which they don’t need to be in a hurry to do anything.
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.
The Fed meeting came few days after the deterioration in sentiment and inflation expectations reported by the University of Michigan Surveys of Consumers. The uncertainty created by Trump's on- and off-again tariffs as well as an escalation in trade tensions risks derailing the economic expansion. Fears of higher prices, which drove consumers' long-term inflation expectations to levels last seen in early 1993. Over the next five years, consumers saw inflation running at 3.9% compared to 3% in December.
But even if Powell’s Committee kept its interest rates steady that doesn't mean the meeting was drama free, as the Fed released its quarterly economic projections, or dot plot, which will reveal where central bankers expect economic growth, inflation, unemployment and interest rates to settle by the end of 2025 and beyond—critical data points as early recession fears emerge.
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 group 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.
They saw the unemployment rate ticking up to 4.4% by year-end, compared to 4.3% 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 with four now.
Officials at Bank of America now figure preferred measure of annual inflation will rise from 2.5% to 2.7% by year-end, above the 2.5% they predicted in December, according to their median estimate.
Economists worry the Trump tariffs could reignite inflation, particularly if the president gets more aggressive after the White House releases a global review of the tariff situation on April 2. If the Fed grows more concerned about tariff-fueled inflation, it could turn even more reluctant to cut.
CNBC channel said investors are right to be concerned about the direction the FOMC indicates, quoting Thierry Wizman, global FX and rates strategist at Macquarie.
“That worry is borne by the suspicion the Fed is not ‘in charge’ anymore, having relinquished control of macroeconomic policy to the Trump administration,” Wizman wrote.
“Given the current uncertainty, and the recent increase in inflation expectations, the Fed may find it difficult to signal three more rate cuts, or even two more. It could push one rate cut into 2026, leaving only one cut in the median ‘dot’ for 2025.”
