Fed Maintains Interest Rates, Lowers Growth Forecast, Raises Inflation Expectations
The U.S. Federal Reserve held its benchmark federal funds rate steady at 4.25%-4.50% on Wednesday, marking its second consecutive pause following three rate cuts at the end of 2024.
In its latest quarterly economic projections, the central bank sharply downgraded its growth outlook, now forecasting GDP to rise just 1.7% in 2025, down from the 2.1% prediction in December. Growth expectations for 2026 and 2027 were also revised downward.
“Uncertainty around the economic outlook has increased,” the Fed stated, likely referencing the economic instability linked to President Trump’s proposed tariff policies.
While growth expectations softened, inflation forecasts moved higher. Core PCE inflation is now projected to reach 2.8% this year, up from the previous estimate of 2.5%. The inflation outlooks for 2026 and 2027 remain at 2.2% and 2.0%, respectively.
The Fed’s “dot plot,” which charts policymakers’ rate expectations, continues to indicate a federal funds rate of 3.9% by the end of 2025, unchanged from December’s projection. The forecast for 2026 remains at 3.4%, while 2027 is expected to see rates at 3.1%.
Additionally, the central bank announced a slowdown in its balance sheet reduction, known as quantitative tightening (QT). Beginning April 1, the monthly runoff of Treasury securities will be reduced to $5 billion, down from the previous $25 billion.
Bitcoin (BTC) initially reacted with volatility following the announcement but trended lower, falling to $83,500 from just above $84,000 before the news.
U.S. equities held onto solid gains, while the 10-year Treasury yield declined slightly by two basis points to 4.28%. Gold, which has been a standout performer among asset classes, remained near record highs at $3,048 per ounce.
Risk assets have faced selling pressure in recent weeks due to growing concerns over Trump’s tariff proposals and their potential impact on inflation and economic growth. Investor sentiment has also been weighed down by the Fed’s hawkish stance in its December and January meetings, dampening hopes for near-term monetary easing.
Fed Chair Jerome Powell is scheduled to speak at 2:30 p.m. Eastern Time (18:30 UTC), with traders closely watching for further insights into policymakers’ stance on monetary policy.
