The Federal Reserve left its interest rates unchanged in the 4.25-4.50 percent range on Wednesday at the conclusion of its March meeting, marking the second meeting in a row the Federal Open Market Committee held rates steady.
In the Fed’s latest economic projections released today, U.S. central bank policymakers indicated that they still expect to reduce borrowing costs by half a percentage point in 2025.
Fed officials also raised their outlook for inflation this year, with their preferred price index expected to end the year at 2.7 percent compared to the 2.5 percent projected in December. Moreover, they reduced their outlook for economic growth for 2025 from 2.1 percent to 1.7 percent, with slightly higher unemployment by the end of this year at 4.4 percent.
“Uncertainty around the economic outlook has increased,” said the Fed in its policy statement.
With no rate cut, economists and investors will await Fed Chair Jerome Powell’s press conference at 2:30 PM ET for further insights into the trajectory of future policy easing.
The UAE central bank has also decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 4.40 percent.
Trump policies raise uncertainty
The Federal Reserve cut its benchmark interest rates by a full percentage point last year as inflation slowed, with policymakers anticipating they were on a steady path toward a neutral interest rate. However, the Fed decided to pause its policy easing cycle as inflation’s decline slowed.
President Donald Trump’s election also raised uncertainty regarding the impact of the new administration’s policies on economic growth and prices. After the election and during the Federal Reserve’s January meeting, policymakers signaled uncertainty surrounding how the new administration’s plans might influence interest rates and the U.S. economy which was strong and poised for continued growth amid slowing inflation.
Since returning to the White House, Trump has unleashed tariffs on imports from China and on primary metals and has threatened broader taxes on imports from U.S. trading partners next month. The president also imposed restrictions on immigration and initiated layoffs of thousands of federal employees.
“The new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their likely effects remains high,” stated Powell earlier this month.
Powell added: “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves. We do not need to be in a hurry, and are well-positioned to wait for greater clarity.”
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Investors expect two 25-basis-point cuts this year
Inflation and unemployment data, which is closely watched by the Federal Reserve, has not yet been impacted by Trump’s latest policies. The unemployment rate edged up to 4.1 percent in February and the economy added 151,000 jobs. Inflation remains above the Fed’s 2 percent target with a coming read for February expected to show a slight increase. However, policymakers still expect inflation to decline this year.
“The economy has been growing at a solid pace. GDP expanded at a 2.3 percent annual rate in the fourth quarter of last year, extending a period of consistent growth that has been supported by resilient consumer spending,” added Powell.
Investors ahead of this week’s meeting expected the Federal Reserve to go ahead with two quarter-percentage-point rate cuts by the end of this year, lowering the overnight interest rates to the 3.75-4.00 percent range.
