On March 20, the Federal Reserve maintained the benchmark interest rate at 4.25%-4.50%, in line with market expectations, indicating that the uncertainty of the economic outlook has increased. The Federal Reserve has continuously cut interest rates since September 2024, marking the second consecutive time this year that the Fed kept rates unchanged since January.
The Federal Reserve FOMC statement indicates that the Federal Reserve will begin to slow the pace of balance sheet reduction starting April 1st. The limit for reducing U.S. Treasury bonds will be slowed from 25 billion USD per month to 5 billion USD per month.
The FOMC statement pointed out that the committee approved this interest rate decision with a voting ratio of 11-1, with only Federal Reserve Board member Waller opposing this interest rate resolution. Waller supports not changing the policy interest rate but is more inclined not to change the pace of balance sheet reduction.
The Federal Reserve significantly lowered its economic growth forecast for 2025 while raising the inflation rate estimate, indicating increased uncertainty around the economic outlook.
Nick Timiraos, the "Fed's mouthpiece," comments on the Fed's economic forecasts: officials have lowered their GDP predictions while raising their forecasts for inflation and the unemployment rate. However, nearly everyone sees downside risks to the economy. Moreover, almost everyone believes there is an upside risk to their predictions for the unemployment rate and inflation.
The dot plot shows that interest rate cuts are expected twice in 2025, consistent with last December.
The latest statement resolution from the Federal Reserve.
The Federal Reserve clearly stated that it will slow down the pace of balance sheet reduction starting in April, indicating that uncertainty around the economic outlook has increased. Federal Reserve Governor Waller supports maintaining the federal funds rate target range unchanged but tends toward continuing to reduce the balance sheet at the current pace.
The full text is as follows:
Recent Indicators show that economic activity continues to expand at a steady pace. In recent months, the unemployment rate has stabilized at a low level, and the labor market conditions remain strong. Inflation levels are still relatively high.
The Committee's goal is to achieve maximum employment over the long term while keeping the inflation rate at 2%. The uncertainty regarding the economic outlook has increased.
To support its objectives, the Committee has decided to maintain the target Range for the federal funds rate at 4.25% to 4.5%. In considering whether to make further adjustments to the target Range for the federal funds rate and the timing of such adjustments, the Committee will carefully assess the latest data, changes in the economic outlook, and the balance of risks. The Committee will continue to reduce its holdings of Treasury securities, Agency debt, and Agency mortgage-backed securities. Starting in April, the Committee will slow the pace of decline in its securities holdings by reducing the monthly redemption cap on Treasury securities from 25 billion dollars to 5 billion dollars. The Committee will maintain the monthly redemption cap on Agency bonds and Agency mortgage-backed securities at 35 billion dollars. The Committee is firmly committed to supporting maximum employment and returning the inflation rate to the 2% target.
In assessing the appropriate stance of monetary policy, the Committee will continue to monitor how the latest information affects the economic outlook. If risks arise that could hinder the achievement of the Committee's goals, the Committee will be prepared to adjust the monetary policy stance as appropriate. The Committee's assessment will take into account a wide range of information, including labor market conditions, inflation pressures, and readings of inflation expectations, as well as financial and international developments.
Members voting in support of this monetary policy action include: Chair Jerome H. Powell, Vice Chair John C. Williams, Michael S. Barr, Michelle W. Bowman, Susan M. Collins, Lisa D. Cook, Austan D. Goolsbee, Philip N. Jefferson, Adriana D. Kugler, Alberto G. Musalem, and Jeffrey R. Schmid. Voting against this action was Christopher J. Waller, who supported maintaining the federal funds rate target Range unchanged but preferred to continue reducing the securities holdings at the current pace.
The latest economic forecast from the Federal Reserve: lower economic expectations for this year and higher inflation expectations.
In the new economic expectations summary, the Federal Reserve has broadly lowered its economic growth expectations and raised its inflation expectations for this year.
The Federal Reserve FOMC economic expectations show that the median GDP growth expectations for the end of 2025 to 2027 are 1.7%, 1.8%, and 1.8%, respectively, compared to December expectations of 2.1%, 2.0%, and 1.9%.
The median unemployment rate expectations for the end of 2025 to 2027 are 4.4%, 4.3%, and 4.3%, respectively, compared to December expectations of 4.3%, 4.3%, and 4.3%.
The median core PCE inflation expectations for the end of 2025 to 2027 are 2.8%, 2.2%, and 2.0%, with December expectations being 2.5%, 2.2%, and 2.0%.
The median federal funds rate expectations from 2025 to 2027 are 3.9%, 3.4%, and 3.1%, with December expectations being 3.9%, 3.4%, and 3.1%.
The Fed's dot plot indicates that a total rate cut of 50 basis points is expected by 2025, with 4 officials supporting no rate cuts this year.
The Fed's dot plot shows that among 19 officials,
4 officials believe there should be no rate cuts in 2025 (1 in December),
4 officials believe there should be a total rate cut of 25 basis points in 2025, which means one rate cut (3 in December),
9 officials believe there should be a total rate cut of 50 basis points in 2025, which means two rate cuts (10 in December),
2 officials believe there should be a total rate cut of 75 basis points in 2025, which means three rate cuts (3 in December).
No official thinks that there should be a cumulative interest rate decrease of 100 basis points in 2025 (1 position in December), and no official thinks that there should be a cumulative interest rate decrease of 125 basis points in 2025 (1 position in December).
It can be seen that the number of officials supporting no interest rate cuts or fewer cuts has increased, reflecting significant internal divergence within the Federal Reserve regarding the appropriate policy path. This is mainly due to the uncertainty that the trade and other policies of the Trump administration bring to the real economy, which increases the complexity the Federal Reserve must address.
Regarding 2026, the median in the dot plot indicates that the Federal Reserve still expects to cut interest rates twice, but the number of officials supporting larger rate cuts is decreasing.
Editor/Somer
