The Federal Reserve held its benchmark lending rate steady following its two-day policy meeting in Washington Wednesday, while cutting its GDP growth forecast and boosting its outlook for near-term inflation amid concern about the impact of tariff, immigration and budget-cutting policies from President Donald Trump.
The Federal Funds Rate was left between 4.25% and 4.5%, a move that analysts fully anticipated, and the central bank held to its broader forecast of two quarter-point rate cuts between now and year’s end. The central bank’s most recent rate cut came in December.
However, the Fed also sharply lowered its 2025 GDP growth forecast, pegging a 1.7% advance compared with December’s estimate of 2.1%.
The Summary of Economic Projections, also known as the Dot Plots, also forecast core inflation accelerating to 2.8%, up from its prior estimate of 2.5%.
“In considering the extent and timing of additional adjustments to the target range for the Federal Funds Rate, the [policy-making Federal Open Market Committee] will carefully assess incoming data, the evolving outlook, and the balance of risks,” the Fed said in a statement. “The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.”
“The Committee will continue to monitor the implications of incoming information for the economic outlook,” the statement added. “The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals.”
Fed Chairman Jerome Powell
ANDREW CABALLERO-REYNOLDS/AFP via Getty Images
U.S. stocks extended gains following the Fed statement, with the S&P 500 last marked 35 points higher on the session and the Nasdaq last marked 144 points higher.
Benchmark 10-year Treasury note yields eased 3 basis points to 4.296% while 2-year notes were pegged at 4.088% after the Fed said it would “slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion.”
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.39% higher at 103.681.
CME Group’s FedWatch tool, meanwhile, now pegs the odds of a May rate cut at just 15% but sees the odds of a quarter-point reduction in June at 53.5%.
Further to the prior post, here are the stagflation-leaning revisions to the Federal Reserve’s growth and inflation forecasts. #economy #markets #centralbanks #FederalReserve pic.twitter.com/THyWUWPP80
— Mohamed A. El-Erian (@elerianm) March 19, 2025
“The problem the US faces is that inflation remains a primary risk and is showing signs of consumer expectations becoming unanchored from the 2% target,” said Lindsay James, investment strategist at London-based Quilter.
“Trump’s election campaign focused hard on bringing inflation down, but this is unlikely in the short-term,” he added. “This is happening at the same time as economic growth is expected to slow and the employment data looks marginally weaker.”
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The Atlanta Fed’s GDPNow tracker suggests the economy will contract by 1.8% this quarter, a sharp reversal from the 2.3% growth pace recorded over the final three months of last year and the 3% average notched over the past two years.
JP Morgan analysts, meanwhile, peg the odds of a U.S. recession at around 40%.
Global investors are dumping U.S. stocks at the fastest pace on record, according to Bank of America’s closely tracked Fund Managers’ Survey, and ploughing their money into cash, European stocks and, increasingly, gold.
Company bosses, meanwhile, are warnings of a pullback in consumer demand, with Walmart (WMT) and Target (TGT) citing tariff concerns and Delta Airlines (DAL) cautioning on near-term demand.
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Investors are also corporate credit spreads widening. These track the extra yield companies need to pay over Treasury bonds in order to fund new debt, operating expenses and other financial actions.
However, Lawrence Gillum, chief fixed income strategist at LPL Financial, isn’t convinced that widening indicates elevated recession risks.
“Key economic indicators, such as employment rates, consumer spending, and corporate earnings, have not shown the sharp declines that usually accompany a recession,” he said.
“This suggests that the widening spreads may reflect localized market adjustments and potential repricing of risk rather than systemic economic weakness.”
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