The Federal Reserve announced on Wednesday that it is to keep its benchmark interest rate unchanged at around 4.3% while raising its inflation forecast and lowering its economic growth outlook, citing uncertainty from tariffs and federal spending cuts under President Donald Trump.
Fed Chair Jerome Powell said the central bank is in a “wait-and-see” stance as it evaluates how policy shifts will impact inflation and economic growth. Officials now expect inflation to hit 2.7% this year, up from 2.5% in January, with tariffs on imported goods contributing to the revision. GDP growth projections for 2025 were lowered to 1.7% from 2.1% in December.
Despite inflation concerns, Powell emphasized that policymakers are reluctant to tighten rates further unless inflation proves persistent. He noted that while tariffs may temporarily drive up costs, the Fed does not want to stifle economic activity unnecessarily.
Meanwhile, the Fed will slow its balance sheet reduction starting in April, reducing the pace of Treasury runoff from $25 billion to $5 billion per month. The move, which aims to avoid disruptions in money markets, faced dissent from Fed Governor Christopher Waller.
Moreover, economic uncertainty has grown as the Trump administration pushes for deregulation, energy price cuts, and broad tariff increases. While some policies could boost growth, others—such as large-scale federal job cuts and trade restrictions—have dampened consumer sentiment and private-sector investment.
According to bank executives, loan demand has also softened, with businesses hesitating on major financial decisions due to unclear policy directions. Some investors have dialed back optimism, with stock markets reacting negatively to the mixed economic signals.
Nevertheless, the Fed remains cautious on interest rate cuts, with a narrower majority of officials—11 out of 19—now expecting at least two rate reductions this year, down from 15 in December. Powell reiterated that the Fed will continue monitoring economic conditions before making adjustments.
