As widely expected, Federal Reserve officials held the benchmark interest rate steady for second straight meeting, though they telegraphed expectations for slower economic growth and higher inflation. The Committee also said it would begin slowing the pace at which it is reducing its balance sheet.
The decision to hold rates steady comes as the President’s ambitious and frequently erratic policy agenda has placed the economy under increasing pressure. The President’s ever-changing plans to levy tariffs have stoked fears of an economic slowdown and raised fresh worries over inflation—a combination that could pull policy makers in opposite directions.
New rate projections indicated that Fed officials have penciled in half a percentage point in rate cuts this year, , the same number as officials estimated when the last issued projections in December. FRB Chair re introduced transitory into the lexicon…defined as the inflationary aspects of any potential tariffs are transitory.
In the Fed’s new economic forecasts, the Committee raised the median estimate for core inflation at the end of this year to 2.8% from 2.5%. Their outlook for 2025 economic growth cooled to 1.7% from 2.1%.
Perhaps somewhat of a surprise, the Central Bank lowers the monthly cap on the amount of Treasuries it will allow to mature without being reinvested to $5 billion from $25 billion. It will leave the cap on mortgage-backed securities unchanged at $35 billion.
The initial interpretation of the outcome was viewed as “nominally dovish,” attempting to address the elephant in the room…tariffs.
Markets maintained gains following the announcement.
Last night the foreign markets were down. London was down 0.14%, Paris down 1.02% and Frankfurt down 1.35%. China was down 0.51%, Japan down 0.25% and Hang Seng down 2.23%.
Dow and NASDAQ futures are down about 0.25% and 0.65%, respectively, as doubts are again creeping in about the Fed’s ability to significantly cut interest rates in the face of potentially inflationary trade tariffs. The 10-year is up 10/32 to yield 4.21%.
