Fed Holds Rates While Growth Forecasts Slip, Inflation Projections Rise

As widely expected, the Federal Reserve kept the fed funds rate unchanged at 4.25%-4.50% in its Wednesday meeting. This marked its second consecutive decision to hold borrowing costs steady as policymakers continue to assess inflation trends before considering any policy shifts.

The March statement noted that the economy continues to expand at a robust pace, the labor market remains solid, but inflation remains somewhat elevated.

A new sentence in the statement emphasized that “uncertainty around the economic outlook has increased,” reflecting growing concerns about future risks.

The Fed also decided to lower the pace of quantitative tightening. “Beginning in April, the Committee will 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 statement says.

Governor Christopher Waller voted against reducing the rhythm of balance sheet tightening.

New Projections Flag Rising Stagflation Risks

The key focus was on updated macroeconomic projections. Growth forecasts for 2024 were revised downward, while inflation expectations rose, signaling growing stagflation risks.

Real GDP is now projected to grow 1.7% this year, down from December's 2.1% estimate. Growth for 2026 was revised from 2% to 1.8%, and for 2027 from 1.9% to 1.8%.

The unemployment rate projection ticked higher from 4.3% to 4.4% for 2025, while projections for 2026 and 2027 have been kept unchanged.

The Personal Consumption Expenditures price index, the Fed's preferred inflation gauge, is expected to reach 2.7% in 2025, up from 2.5% previously. Broader price pressures for 2026 were also revised higher, from 2.1% to 2.3%.

Core PCE, which strips out food and energy costs to provide a clearer view of underlying inflation, was adjusted upward from 2.5% to 2.8% for 2024.

The median forecast for interest rates continues to pencil in two rate cuts for both 2025 and 2026. Fed Chair Jerome Powell will hold his press conference at 2:30 p.m.

Fed's March 2025 Summary of Economic Projections

Variable	2025	2026	2027	Longer Run
Change in real GDP	1.7	1.8	1.8	1.8
Dec. projection	2.1	2.0	1.9	1.8
Unemployment rate	4.4	4.3	4.3	4.2
Dec. projection	4.3	4.3	4.3	4.2
PCE inflation	2.7	2.2	2.0	2.0
Dec. projection	2.5	2.1	2.0	2.0
Core PCE inflation	2.8	2.1	2.0
Dec. projection	2.5	2.1	2.0
Federal funds rate	3.9	3.4	3.1	3.0
Dec. projection	3.9	3.4	3.1	3.0

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Image created using artificial intelligence via Midjourney.