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Takeaways
- As widely expected by the financial markets, the Federal Reserve maintained its key rate of interest.
- Fed officials have adopted a "wait-and-see" approach to interest rates as they wait for clarity on whether President Donald Trump's trade wars will stoke inflation, push up unemployment, or both.
- Fed officials have adopted a more negative outlook for the coming year, increasing their expectations for inflation and lowering their economic growth and job forecasts.
As expected, Federal Reserve held steady its key rate, waiting to see if the economy would send any signals about its future trajectory, amid uncertainty regarding the effects of Donald Trump’s tariff war.
The Federal Reserve policy committee has held the fed funds rates in a range between 4.25% and 4.5% since Wednesday, January. The key rate, which affects borrowing costs for all loans, is so high that Fed officials consider it to be a drag both on inflation and on the growth of the country.
Fed officials are trying to keep the Fed funds rate high enough so that inflation is pushed down. Inflation has been stubbornly above the Fed goal of a 2 percent annual rate for the past few months, but it shouldn’t be too high to dampen business to the extent where unemployment increases. Trump’s campaign of tariffs on trading partners complicates the outlook for the Fed since it could both slow the economy and push up inflation, according to economic forecasters. It has caused uncertainty among business leaders and consumers that could damage the economy.
In a statement that accompanied the interest rate decision, the Federal Open Market Committee stated that “uncertainty has increased” regarding the economic outlook.
The Fed’s economic outlook has deteriorated since December when officials last projected unemployment, inflation, and interest rates. This indicates a growing threat of “stagflation.”
The Federal Open Market Committee members projected that the unemployment rate would rise to 4.4% at the end of this year, from 4.3% in December. They also projected that inflation, as measured by core Personal Consumption Spending, would increase by 2.8%, up from the 2.5% projections in December, and the Gross Domestic Products would grow by 1.7%, down slightly from the 2.1% forecast in December.
The Fed’s outlook on rate cuts for this year was left unchanged: officials at the central banks still expect to cut the fed funds rate by a half-point, to a range between 3.75% and 4% by the end 2025.
Jerome Powell, Federal Reserve chair, said the Fed is also watching Trump’s proposed federal regulation cuts, tax cuts and crackdown on illegal immigration. The Fed is hesitant because of all the uncertainty, Powell said.
"The new administration is in the process of implementing policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. The net effect will be important for the economy and the path of monetary policies. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high," Powell said. “We are focused in separating the signals from the noise, as the outlook changes.”
Updated March 19, 2025 This article has been updated after publication to include comments from Federal Reserve Chair Jerome Powell's press conference.
