Fed Keeps Interest Rates Unchanged, Raises Inflation Outlook for 2025
The Federal Open Market Committee (FOMC) maintained the federal funds rate between 4.25% and 4.5% at its March 2025 meeting, while adjusting key economic forecasts.
FOMC meeting in session
Key Updates:
- Inflation projection increased from 2.5% to 2.7% for 2025
- Economic growth forecast reduced from 2.1% to 1.7%
- Two potential rate cuts remain planned for 2025
- Balance sheet reduction slowed from $25 billion to $5 billion monthly in Treasury maturities
The Fed cited trade policies and tariffs as primary factors behind the inflation adjustment, while economic growth projections were lowered due to anticipated trade-related slowdowns. The committee maintains its dual focus on price stability and employment conditions.
Jerome Powell at podium speaking
Market Response:
- Dow Jones Industrial Average: +0.63%
- S&P 500: +0.72%
- Nasdaq Composite: +1.01%
- 10-year Treasury yield: rose to, 4.3%
Fed Chair Jerome Powell emphasized the data-dependent nature of future policy decisions, stating, "We are closely monitoring all economic indicators to ensure a balanced approach in our decision-making process." The next FOMC meeting in June will be crucial in determining whether rate cuts begin or current policies persist based on economic conditions.
The reduced balance sheet reduction rate signals the Fed's preparation for potential market volatility and commitment to maintaining adequate financial system liquidity. This balanced approach has been well-received by markets, with investors appreciating the Fed's acknowledgment of inflation risks while maintaining stability.