Fed holds interest rates steady

The Federal Reserve announced on Wednesday that it would not be changing its benchmark interest rates, but indicated that rate cuts are likely in the near future. This decision comes amidst concerns about the impact of tariffs on the economy, as well as a slowdown in economic growth.

Despite the uncertainty surrounding the economic outlook, the Federal Open Market Committee (FOMC) kept its key borrowing rate targeted in a range between 4.25%-4.5%. The Fed also updated its rate and economic projections for this year and through 2027, and altered the pace at which it is reducing bond holdings.

Federal Reserve Chair Jerome Powell stated that the central bank still sees the potential for another half percentage point of rate cuts through 2025, which would likely mean two reductions this year. Investors reacted positively to the news, with the Dow Jones Industrial Average rising more than 400 points following the announcement.

However, Powell emphasized that the Fed would be willing to keep interest rates elevated if economic conditions warranted it. He stated, “If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer.”

The FOMC noted in its post-meeting statement that there is an elevated level of uncertainty surrounding the economic outlook. Powell mentioned a moderation in consumer spending and anticipated upward pressure on prices due to tariffs, which may have contributed to the committee’s more cautious economic outlook.

The Fed downgraded its outlook for economic growth and raised its inflation projection. It now expects the economy to grow at a 1.7% pace this year, down from the previous estimate of 2.1%. Core prices are expected to grow at a 2.8% annual pace, up from the previous estimate of 2.5%.

In addition to the rate decision, the Fed announced a further scaling back of its “quantitative tightening” program, reducing the pace at which it is reducing the bonds on its balance sheet. The central bank will now allow just $5 billion in maturing proceeds from Treasurys to roll off each month, down from $25 billion.

Overall, the Fed’s actions reflect the uncertain economic climate and the challenges posed by tariffs and slowing economic growth. The central bank remains cautious in its approach to monetary policy, balancing the need for rate cuts with the potential risks to the economy.