Fed Keeps Interest Rates Unchanged, Revises Economic Outlook
The Federal Open Market Committee (FOMC) maintained the federal funds rate at 4.25% to 4.5% following its March 2025 meeting, while adjusting key economic forecasts.
FOMC meeting in session
The Committee raised its 2025 inflation projection from 2.5% to 2.7%, citing trade policy pressures and tariffs. Growth forecasts were reduced from 2.1% to 1.7%, reflecting potential trade-related economic slowdowns. Despite these adjustments, the Fed maintains its outlook for two rate cuts this year.
The Fed announced a reduction in its balance sheet runoff, decreasing monthly Treasury maturities from $25 billion to $5 billion to ensure market liquidity. This strategic shift indicates preparation for potential market volatility.
Jerome Powell at podium speaking
Markets responded favorably to the announcement:
- Dow Jones Industrial Average: +0.63%
- S&P 500: +0.72%
- Nasdaq Composite: +1.01%
- 10-year Treasury yield: rose to 4.3%
Fed Chair Jerome Powell emphasized the central bank's data-dependent approach, stating they will closely monitor economic indicators to balance price stability with growth and employment objectives. The June FOMC meeting will be crucial in determining whether rate cuts begin or current policies continue based on economic conditions.
The Committee acknowledged that while persistent inflation could delay rate reductions, economic weakness might require policy adjustments. This balanced stance maintains flexibility while addressing both inflation risks and growth concerns.
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