On Wednesday, the Federal Reserve decided to keep interest rates steady for the second meeting in a row. This decision comes amid growing acknowledgment from the central bank about the potential impacts of President Trump’s economic policies. These policies are stirring up substantial uncertainty regarding future inflation, economic growth, and ultimately, interest rate trends. Here’s a breakdown of the key points:
During a news conference, Fed Chairman Jerome H. Powell highlighted tariffs as a significant concern. He remarked that tariffs could delay achieving the Fed’s 2 percent inflation target. This concern was reflected in the latest economic projections, where officials now predict core inflation—which excludes the erratic prices of food and energy—to linger at 2.8 percent by the end of this year, and then decrease to 2.2 percent by 2027.
Despite holding on to previous plans to trim interest rates by half a percentage point this year through two quarter-point reductions, Fed officials are projecting modest growth. There remains a broad range of expected outcomes: eight policymakers foresee either no further rate cuts or just one more this year, while only two predict a 0.75 percentage point decrease, suggesting three quarter-point cuts.
Chairman Powell has consistently stressed the Fed’s readiness to adapt to sudden economic changes while maintaining patience with rate adjustments. He reassured that the robust labor market allows for such patience, even as recent surveys indicate that consumer expectations about inflation and the economy are becoming more pessimistic.
While navigating the future of interest rates and the economy was a focal point of the March meeting, the Fed’s move to moderate its balance sheet reduction pace also warranted attention. Powell explained that this strategy aims to minimize potential disruptions in funding markets.
