(Bloomberg) — Federal Reserve officials held their benchmark rate of interest regular for a second straight meeting, caught between mounting concerns that the economy is slowing and inflation could remain stubbornly high.
Most Read from Bloomberg
Chair Jerome Powell acknowledged the high degree of uncertainty from President Donald Trump’s significant policy changes, but repeated the central bank isn’t in a rush to regulate borrowing costs. He said officials can wait for greater clarity on the impact of those policies on the economy before acting.
The Federal Open Market Committee voted on Wednesday to maintain the benchmark federal funds rate in a spread of 4.25%-4.5%, and said it might further slow the pace at which it’s reducing its balance sheet. Governor Christopher Waller, who supported holding rates regular, dissented from the choice over the balance sheet move.
The choice to carry rates regular comes as Trump’s ambitious and ceaselessly erratic policy agenda has placed the economy, and the Fed’s ability to maintain it on target, under increasing pressure. Trump’s ever-changing plans to levy tariffs on US trading partners have stoked fears of an economic slowdown and raised fresh worries over inflation — a mixture that might pull policymakers in opposite directions.
“Inflation has began to maneuver up,” Powell said, “we expect partly in response to tariffs. And there could also be a delay in further progress over the course of this 12 months.”
Powell said his base case is that any tariff-driven bump in inflation shall be “transitory,” but later added it’s going to be very difficult to say with confidence how much inflation stems from tariffs versus other aspects.
The S&P 500 moved higher as Powell spoke, and Treasury yields moved lower.
Updated Projections
Latest economic projections showed Fed officials marked down their forecasts for growth this 12 months, while boosting estimates of inflation. It also showed officials continued to pencil in a half percentage point of rate cuts this 12 months, based on the median estimate, implying two quarter-point rate reductions.
That said, eight officials saw one reduction or fewer this 12 months, underscoring policymakers’ resolve — no less than for now — to suppress inflation even when growth slows.
Powell said the outlook for monetary policy didn’t change since the forecasts for lower growth and better inflation balance one another out.
The Dot Plot, Explained: Understanding How the Fed Forecasts
“Uncertainty across the economic outlook has increased,” the committee said in a post-meeting statement. Officials also removed prior language stating that risks to achieving their employment and inflation goals were roughly in balance.
Officials raised the median estimate for so-called core inflation, which strips out volatile food and energy prices, at the tip of this 12 months to 2.8% from 2.5%. Their outlook for 2025 economic growth cooled to 1.7% from 2.1%.
They raised their estimate for unemployment to 4.4% by the tip of this 12 months, from the 4.3% they saw in December.
Changing Picture
Fed officials have kept rates regular this 12 months after cutting them by a percentage point within the closing months of 2024. Since December, they’ve signaled a desire to see more progress on inflation, and more clarity on the impact of Trump’s policies, before they consider one other move.
In that point, inflation has remained elevated while consumers’ expectations for future price growth have climbed amid an escalating trade war. Spending has softened, and consumer confidence has deteriorated sharply.
Powell said recession odds have moved up, but will not be high. He pointed to so-called soft data specifically, like sentiment, as flashing concern, but underscored the Fed’s emphasis is on hard data. He pushed back against data from the University of Michigan showing a pointy increase in long-term inflation expectations, calling it an “outlier.”
“We do understand that sentiment has fallen off pretty sharply, but economic activity has not yet and so we’re watching fastidiously,” Powell said. “I might tell people the economy appears to be healthy.”
Investors have reacted negatively to the mounting trade war and concerns in regards to the growth outlook, with the S&P 500 falling greater than 10% from mid-February before paring a few of those losses.
The Trump administration has done little to ease recession fears, with the president saying on March 9 the US economy faces a “period of transition.” Treasury Secretary Scott Bessent has said the US economy and financial markets were in need of a “detox.”
Balance Sheet
The Fed also said that, starting in April, it’s going to lower the monthly cap on the quantity of Treasuries on its balance sheet that it allows to mature without being reinvested, to $5 billion from $25 billion. It’s going to leave the cap on mortgage-backed securities unchanged at $35 billion. Waller preferred to proceed the present pace.
Various officials noted throughout the committee’s January meeting that it could be appropriate to contemplate pausing or slowing the Fed’s balance-sheet runoff until the federal government is not any longer up against the debt ceiling, the statutory limit for outstanding Treasury debt. The US hit that limit in January.
The Fed first began slowing the pace at which it shrinks its portfolio of assets in June — a bid to ease potential strain on money market rates.
–With assistance from Jonnelle Marte, Matthew Boesler, Vince Golle, Liz Capo McCormick, Laura Curtis and Craig Torres.
(Adds additional comments from Powell starting in tenth paragraph.)
Most Read from Bloomberg Businessweek
©2025 Bloomberg L.P.