The Federal Reserve held interest rates steady Wednesday for the second meeting in a row and maintained a prior prediction for two rate cuts at some point this year.
What the central bank did change, however, was its outlook on inflation and economic growth amid uncertainties stemming from President Trump’s plans for an aggressive slate of new tariffs.
Fed officials now see inflation staying higher this year than previously estimated and economic growth going lower than prior predictions.
Policymakers estimate that the core Personal Consumption Expenditures (PCE) measure of inflation will be 2.8% at the end of 2025, compared with 2.5% previously.
And the US economy is now projected to grow at an annualized pace of 1.7% instead of 2.1%. The unemployment rate is seen edging up to 4.4% from 4.3% previously.
“There are so many things we don’t know,” Fed Chair Jerome Powell said at a press conference Wednesday, and “uncertainty is remarkably high.”
But what is known about tariffs, he added, is that they “tend to bring growth down and they tend to bring inflation up.”
He acknowledged that the new Fed view on inflation this year can be attributed at least in “good part” to the tariffs, but his “base case” is that the inflationary effect from tariffs will be transitory.
Powell told reporters Wednesday that progress on bringing inflation down to the Fed’s goal “is probably delayed for the time being,” but he noted that officials do see the goal still being reached by 2027.
“We are going to have to see how things work out,” he added.
The signature move from the White House since Jan. 20 has been the imposition of tariffs on China, Canada, and Mexico, as well as on steel and aluminum. Trump promises to announce a new slate of “reciprocal” duties on many more countries early next month.
Powell has also consistently stressed a wait-and-see approach to assessing the economic impact of policy changes and did the same Wednesday at his press conference, telling reporters that the Fed is focusing on “separating the signal from the noise” when evaluating how Trump’s policies may affect the economic outlook.
“We do not need to be in a hurry to adjust our policy stance,” Powell said.
The Fed has now held borrowing costs steady for two consecutive meetings, maintaining its benchmark interest rate in the range of 4.25%-4.5%. The pause follows three consecutive rate cuts in late 2024.
The central bank also announced it will begin slowing the pace of Treasuries being drawn off its balance sheet starting in April, reducing the amount of Treasuries allowed to roll off from $25 billion to $5 billion. The Fed, however, will maintain the pace of mortgage-backed securities being drawn down by $35 billion per month.
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