Key Points:
- The Federal Reserve kept interest rates unchanged, as anticipated, while notably lowering growth predictions and increasing inflation estimates.
- The central bank highlighted growing uncertainty regarding the economic outlook.
- Starting April 1, the Fed will moderate the pace of balance sheet reduction, specifically its quantitative tightening measures.
As expected, the U.S. Federal Reserve froze its benchmark fed funds rate range at 4.25%-4.50% on Wednesday, marking the second consecutive hold following three rate reductions to end 2024.
The Fed’s quarterly economic projections indicated a considerable drop in their economic growth forecasts, with the GDP growth for 2025 now estimated at only 1.7% compared to a prior forecast of 2.1% in December. Revised growth projections for 2026 and 2027 have also been adjusted downwards.
“Uncertainty surrounding the economic outlook has risen,” the Fed stated, likely referring to the turmoil connected to impending tariff policies hinted at by President Trump.
Core PCE inflation expectations have also shifted, now forecasted at 2.8% for this year, up from the previous 2.5% estimate, with core inflation rates for 2026 and 2027 remaining unchanged at 2.2% and 2.0%, respectively.
The ‘dot plot’ showcasing FOMC members’ anticipated projections for interest rates still suggests that the fed funds rate will conclude this year at 3.9%, consistent with December’s outlook. Projections for 2026 and 2027 remain at 3.4% and 3.1%, respectively.
Additionally, the Fed announced it will begin tapering the speed of securities runoff from its balance sheet, commencing April 1, reducing the decline in Treasury holdings to $5 billion from the previously stated $25 billion.
In response to the announcement, Bitcoin was volatile initially but decreased in value to approximately $83,500, down from slightly above $84,000 prior to the release.
Meanwhile, U.S. stocks are maintaining robust gains, and the 10-year Treasury yield has dropped two basis points to 4.28%. Gold, a recent standout among asset classes, remains near all-time highs at $3,048 per ounce.
Risk assets have faced pressure in recent weeks due to rising concerns over President Trump’s tariff proposals and their perceived effect on inflation and economic growth, which have dampened investor sentiment. The Fed’s hawkish stance in the December and January meetings has also extinguished hopes for looser financial conditions soon, creating headwinds for cryptocurrencies and stock markets.
Fed Chairman Jerome Powell is set to deliver remarks at 2:30 p.m. Eastern Time (18:30 UTC), with market participants keenly listening to his insights for hints on the monetary policy outlook.
