Fed Holds Rates Steady Amid Tariff Uncertainty and Inflation Concerns
On 19 March, the US Federal Reserve announced it would maintain its current rate pause, keeping the federal funds rate within the 4.25%–4.5% range. The updated economic summary reveals a notable downward revision in the 2025 GDP growth forecast, lowered from 2.1% (estimated in December) to 1.7%. In contrast, the Fed’s preferred inflation measure, the PCE, was revised upward from 2.5% to 2.7%, with core PCE also increasing from 2.5% to 2.8%.
The Fed’s dot plot indicates that policymakers expect the federal funds rate to settle between 3.75% and 4% by the end of 2025. This suggests that while rate cuts are on hold for now, the Fed may implement two cuts later this year.
Addressing broader economic pressures, Fed Chair Jerome Powell spoke about the uncertainty surrounding the economic impact of Trump’s global tariff war, particularly its effect on price growth. He downplayed concerns about inflation, suggesting that the impact is likely transitory.
“As I’ve mentioned, it can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us, if it’s transitory,” Powell said. He described this as the “base case” but admitted that policymakers can’t be certain whether the effect will be short-lived.
With US interest rates remaining unchanged and tariff uncertainty prevailing, market sentiment has shifted towards inflation repricing and geopolitical tensions.
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