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Key takeaways

  • The Federal Reserve (Fed) unanimously voted to hold interest rates steady at 4.5% for a second straight meeting, following three consecutive rate reductions that began last September.
  • The Fed’s latest economic projections reveal expectations of slower growth and higher core inflation by year-end. This partially reflects the expected impact of recently implemented U.S. tariffs and consequential retaliation.
  • The Fed announced that it will further slow the pace of quantitative tightening in April, by reducing the monthly cap on U.S. Treasuries redemption to $5 billion from $25 billion.
  • Our strategists anticipate that the Fed will continue to sit on the sidelines and wait for more clarity on the economic impacts of new policies by the Trump administration. Still, they expect a gradual easing of interest rates later this year.

Contributors

Cristina Dwyer

Analyst, J.P. Morgan Wealth Management

Federal Reserve keeps interests rates steady at 4.5%

At the March 2025 Federal Open Market Committee (FOMC) meeting, the Federal Reserve (Fed) kept interest rates steady at 4.5% for a second straight meeting. This decision follows a pause in January after three consecutive rate reductions that began last September, which cumulatively lowered the Fed funds rate from 5.5% to 4.5%.1

Why pause again? Fed Chairman Jerome Powell highlighted that the economy is progressing at a steady pace with solid labor market conditions.2

On the inflation front, Powell acknowledged that while inflation remains elevated, it has moderated over the past year. In January, core consumer prices, which strip out the more volatile food and energy components, have decelerated to a 2.6% year-over-year (YoY) increase in January 2025 from a 3.1% YoY increase in January 2024, inching closer to the Fed’s 2% target.

The economy’s resilience supports the Fed’s “wait-and-see” posture, giving them time to carefully assess potential impacts on inflation and growth from recent policy shifts under the Trump administration. Our strategists anticipate that the Fed will continue to sit on the sidelines and wait for more clarity. Still, they expect a gradual easing of interest rates later this year.

Additionally, and as largely expected, the Fed announced that it will further slow the pace of quantitative tightening in April by reducing the monthly cap on U.S. Treasuries redemption to $5 billion from $25 billion.3

There was one dissenting committee member, Christopher Waller, who voted to keep the Fed funds target rate unchanged but “preferred to continue the current pace of decline in security holdings.”4

What does this mean for investors?

For investors, today’s FOMC meeting reaffirms the importance of reviewing your investment portfolios, ensuring they provide diversified sources of income and are aligned with your longer-term financial goals.

A deeper look: Summary of economic projections

The Summary of Economic Projections (SEP) revealed a few key changes in policymakers’ 2025 forecasts from the December 2024 FOMC meeting:

  • Growth: The Fed lowered its gross domestic product (GDP) growth forecast to 1.7% from 2.1%, indicating more moderate economic activity than anticipated.
  • Inflation: The Fed raised its core inflation (excluding the volatile food and energy components) projections for 2025 to 2.8% from 2.5%. This shift partially reflects the expected impact of recently implemented U.S. tariffs and consequential retaliation.
  • Unemployment rate: The year-end unemployment rate forecast was revised upward to 4.4% from 4.3%.5

Meanwhile, the Fed’s expected path of the Fed funds rate stayed unchanged, still penciling in two rate cuts this year and two more next year. Notably, fewer FOMC members called for more than two cuts compared to last month, while more members than previously called for no cuts.6

Overall, the March SEP revisions underscore the heightened uncertainty surrounding the economic outlook. Although forecasts were weaker, they still suggest continued economic expansion with a resilient macroeconomic backdrop.7

Changes in FOMC statement highlight economic uncertainty

Notably, the FOMC statement removed prior language noting the “risks to achieving its employment and inflation goals are roughly in balance,” replacing it with language highlighting that “uncertainty around the economic outlook has increased.” This is in part due to recent policy changes.8

To what extent were recent tariff changes incorporated in these economic projections?

During Powell’s press conference, he remarked that tariffs likely drove a “good part” of the Fed’s elevated inflation forecast. He stated that the Fed will work to “separate nontariff inflation” from “tariff inflation.”9

Powell acknowledged that tariff-driven inflation has delayed further progress on the inflation front. While the outlook remains “highly uncertain,” the central bank still expects inflation could fall to its 2% target around 2026 or 2027.10

Powell emphasized that the cost of waiting for “further clarity” on the path of tariffs and policy is low given the “solid” economic backdrop.11

References

1.

Board of Governors of the Federal Reserve System, “Federal Reserve Issues FOMC Statement.” (March 19, 2025)

2.

Ibid.

3.

Ibid.

4.

Ibid.

5.

Board of Governors of the Federal Reserve System, “Summary of Economic Projections” (March 19, 2025)

6.

Ibid.

7.

Ibid.

8.

Ibid.

9.

Board of Governors of the Federal Reserve System, “Transcript of Chair Powell’s Press Conference Opening Statement” (March 2025)

10.

Ibid.

11.

Ibid.

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