U.S. FOMC Meeting (March 18-19, 2025)

Fed keeps rates on hold, trims growth and raises inflation outlook

• The Federal Reserve Open Market Committee (FOMC) maintained the federal funds rate in the 4.25% to 4.50% range. It also announced that it will slow the pace of Quantitative Tightening (QT) to ensure sufficient Treasury market liquidity. 
  
• The Fed justified its decision to hold rates steady by highlighting that the economy "continued to expand at a solid pace", the labor market "remains solid" and inflation remains "somewhat elevated". 
  
• The Fed's Summary of Economic Projections was updated from December:
  
  • The median projection for real GDP growth was downgraded to 1.7% in 2025, 1.8% in 2026, 1.8% in 2027, and 1.8% over the long run (from 2.1%, 2.0%, 1.9%and 1.8%). 
    
  • The median unemployment rate forecast was effectively unchanged at 4.4% in 2025, 4.3% in 2026, 4.3% in 2027, and 4.2% over the long run (from 4.3%, 4.3%, 4.3%, and 4.2%).
    
  • On inflation, the median estimate for core PCE was raised to 2.8% in 2025, and 2.2% in 2026, and 2.0% in 2027 (from 2.5%, 2.2%, and 2.0%).
    
  • The median projection for the fed funds rate was held at 3.9% in 2025, 3.4% in 2026, 3.1% in 2027, and the long-run neutral rate was assumed to be 3.0%.
    
• All the members of the FOMC voted in favor of keeping the fed funds rate unchanged, but Christopher Waller dissented as he didn't want to change the pace of QT.

Key Implications

• The Fed was effectively silent on the risks to the economy coming from trade tariffs, giving just a subtle nod to the "uncertainty" around its outlook. Yes, it did cut its growth outlook and raise its view of inflation. But these forecasts are more about marking-to-market rather than embedding any form of trade war (which has already started). This means there is more downside risk to the Fed's growth outlook and upside risk to inflation as this tit-for-tat trade battle persists. See our latest outlook for details of how this could all play out. 
• Markets are expecting the Fed to remain on hold until the summer. Given the strong jump-off point for the economy, this makes sense as it will take time for the impact of President Trump's policies to show up in the economic data. Fed members have previously signaled concern over inflation risks coming from import tariffs, signaling that they may have to respond with tighter than otherwise monetary policy (a lesson learned post-Covid).     

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