Federal Reserve keeps rates unchanged, warns of inflation risks

Markets largely anticipated the central bank to keep rates steady at 4.25–4.50 percent, but investor focus remains on whether the Fed maintains its forecast for two rate cuts this year.

Moneycontrol News

March 20, 2025 / 00:37 IST

Fed chair Jerome Powell

The Federal Reserve held interest rates steady at 4.25 percent to 4.5 percent citing that 'uncertainty' around economic outlook has risen in the last few weeks. It also sounded concerns over upside risks to inflation amid Trump's tariff plans.

To that effect, the rate setting panel raised the median estimate for core inflation to 2.8 percent from 2.5 percent by year-end. Their outlook for 2025 economic growth softened to 1.7 percent from 2.1 percent. They also revised their unemployment forecasts higher at 4.4 percent by end of 2025, up from 4.3 percent in December.

Fed Chair Jerome Powell also stated that assessing the impact of tariffs on inflation remains challenging at this stage. However, current surveys indicate that tariffs are pushing inflation expectations higher. He also noted that inflation has begun to rise, in part due to the effects of tariffs.

Despite that, policymakers reassured their expectation of two rate cuts in 2025. The latest rate projections revealed that a slim majority of Fed officials anticipate a total of half a percentage point in rate cuts this year, implying two quarter-point reductions, unchanged from their December forecast.

The Fed’s decision comes amid escalating trade tensions between the US and key partners. Earlier this month, President Donald Trump imposed tariffs on goods from Canada, Mexico, and China, prompting retaliatory duties from Canada and China. Meanwhile, Trump’s temporary tariff exemptions on certain Canadian and Mexican imports are set to expire on April 2.