Fed Holds Rates Steady, Still Sees Two Cuts in 2025

As expected after the latest inflation readings showed no further progress towards the two percent goal, the Fed decided to keep its policy rate steady for the second time this year. Following a two-day meeting of the Federal Open Market Committee (FOMC), Fed chairman Jerome Powell announced that the target range for the federal funds rate would be kept at 4.25 to 4.50 for the time being, saying that there's no need to rush anything as the Fed is well positioned to follow a wait-and-see approach during this time of high uncertainty.

Despite widespread fears that the tariffs imposed by the Trump administration could reheat inflation, FOMC members have kept their outlook for future rate adjustments unchanged from their December predictions. The median estimate is that we're going to see two 25 point cuts until the end of the year and two more in 2026. However, the consensus among committee members isn't as clear as it was three months ago, with eight of the 19 Fed officials seeing fewer or no cuts this year, up from just four at the December meeting.

In his press conference following the meeting, Powell acknowledged that the Fed's forecasts, always subject to sudden changes in circumstances, were made with an "unusually elevated" degree of uncertainty in light of the "significant policy changes" suggested or already implemented by the Trump administration. "The new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy," Powell said. "As we parse the Incoming information, we are focused on separating the signal from the noise as the outlook evolves."