Fed Meeting Highlights: Rates Held, Just Two Cuts Likely In 2025; Powell Says Tariffs Delay Lowering Inflation

The US Federal Reserve kept interest rates unchanged on Wednesday in its latest policy meeting, maintaining the benchmark rate in a target range of 4.25–4.50%.

The decision comes as policymakers signalled only two rate cuts this year, in line with their December projections, while acknowledging increased uncertainty in the economic outlook. 

The Fed remains prepared to adjust policy if risks emerge that could impede its goals, as trade tensions rise under US President Donald Trump's administration. Trump has floated new tariffs on major trading partners, adding to concerns over growth and inflation.

The Fed Chair noted that a "good part" of the higher inflation expectations was due to the tariffs imposed by Trump. "Clearly some of it, a good part of it, is coming from tariffs,” Powell said.

The Fed downgraded its economic growth outlook while raising its inflation projection.

When asked about the potential for any DOGE-derived saving to be sent to households in check form, Powell declined to comment.

Rate Projections

The Fed's "dot plot", which charts policymakers' rate expectations, showed the median official expects to lower rates by just 50 basis points in 2025, implying two quarter-point cuts. This is unchanged from their December forecast.

Powell emphasised the central bank's commitment to its dual mandate of maximum employment and price stability, saying: "The economy is strong overall and has made significant progress toward our goals over the past two years."

Uncertainty In Outlook Rises

The policy statement introduced new language noting that "uncertainty around the economic outlook has increased" and removed a previous reference that risks to employment and inflation "are roughly in balance".

Powell acknowledged the ongoing risks, stating: "Surveys of households and businesses point to heightened uncertainty about the economic outlook. It remains to be seen how these developments might affect future spending and investment."

Fed Slows Balance-Sheet Reduction

In a technical policy shift, the Fed announced it would slow the pace of its balance sheet runoff starting in April. The monthly cap on Treasury securities redemption will be reduced from $25 billion to $5 billion, while the $35-billion cap on agency debt and mortgage-backed securities will remain unchanged.

Waller Dissents On Balance Sheet Policy

Fed Governor Christopher Waller voted against the decision, marking the third such dissent since the Fed began lowering rates in September. While he supported holding rates steady, he preferred to continue the current pace of balance-sheet reduction.

Growth Outlook Downgraded, Inflation Estimates Raised

The Fed revised down its gross-domestic-product growth estimate for 2025 to 1.7%, from 2.1% previously. At the same time, the median official raised their forecast for core inflation at the end of 2025 to 2.8%, up from 2.5% in December.

"Inflation has eased significantly over the past two years but remains elevated relative to our 2% longer-run goal," Powell said.

He also pointed out that some inflation expectations have ticked higher, with "survey-based respondents, both consumers and businesses, mentioning tariffs as a driving factor".

Policy Path Remains Uncertain

Looking ahead, Powell stressed that the Fed would continue monitoring incoming data and remain flexible in adjusting policy as needed. "We are focused on separating the signal from the noise as the outlook evolves," he said, adding that new administration policies on trade, immigration and fiscal policy could also influence the economic landscape.