The Federal Reserve's March 20 interest rate decision kept the federal funds rate target range unchanged at 4.25%-4.5%. It was passed by an 11-1 vote, and only Waller opposed it.

The Federal Reserve's bitmap shows that it is expected to cut interest rates twice in 2025, by 25 basis points each time, lowering the US GDP growth forecast to 1.7% this year and raising the core PCE inflation forecast to 2.8%.

Click to read“Full text of the Federal Reserve's resolution: Remaining on hold in March. It is still expected to cut interest rates twice during the year, lower this year's economic expectations, and raise inflation expectations”

Highlights of the Federal Reserve's FOMC statement and Chairman Powell's press conference are summarized as follows:

I. Interest rate/monetary policy aspects

① The Federal Reserve kept the federal funds rate target range unchanged at 4.25%-4.5%, in line with expectations.

② The Federal Reserve's bitmap shows that interest rates are expected to be cut twice in 2025, and the median long-term federal funds rate is expected to be 3.0%.

③ According to FOMC economic forecasts, the median federal funds rate expectations for 2025 to 2027 are 3.9%, 3.4%, and 3.1%, respectively.

④ The Federal Reserve's bitmap forecast shows that interest rates are expected to be cut by 50 basis points in 2026.

⑤ Powell said that the Federal Reserve does not need to hastily adjust its policy position.

⑥ Powell said that if the labor market is weak, policies can be relaxed if necessary.

⑦ Powell said that he has seen some signs of increasing monetary market tightening.

⑧ Powell said that the Federal Reserve is in a position where it can cut interest rates or maintain a restrictive stance.

⑨ When asked if the Federal Reserve will cut interest rates in May, Powell said he will not rush to cut interest rates.

II. Inflation aspects

① According to the FOMC statement, inflation “remains at a high level.”

② According to FOMC economic forecasts, the median core PCE inflation expectations from 2025 to the end of 2027 are 2.8%, 2.2%, and 2.0%, respectively.

③ Powell said that inflation is still relatively high.

④ Powell said that some short-term inflation indicators have shown an upward trend.

⑤ Powell said that the baseline forecast is that inflation will be temporary, and no significant increase in the long-term inflation rate has been found.

⑥ Powell said that further progress in inflation this year may be delayed.

⑦ Powell said that there is no story of inflation to tell in five years.

⑧ Powell said that he does not deny the rise in short-term inflation expectations, but long-term expectations will not rise.

III. The US Economy

① The FOMC statement shows that uncertainty about the economic outlook has increased.

② According to FOMC economic forecasts, the median GDP growth rate expectations from 2025 to the end of 2027 are 1.7%, 1.8%, and 1.8%, respectively.

③ Powell said that the US economy is generally strong, and the survey shows that economic uncertainty has increased.

④ Powell said that in the framework review process, the focus is currently on labor market dynamics and full employment goals.

⑤ Powell said that the possibility of a recession in the US economy has increased, but it is not high.

⑥ Powell said that market confidence has declined sharply, but there is no economic activity yet.

IV. Financial Markets

① According to the FOMC statement, the Federal Reserve will start slowing down the pace of balance sheet reduction on April 1.

② According to the FOMC statement, the maximum reduction limit on US debt holdings will be lowered from 25 billion US dollars/month to 5 billion US dollars/month, and the MBS holdings reduction limit will be maintained at 35 billion US dollars/month.

③ According to the FOMC statement, keep the discount rate unchanged at 4.5% and the reserve balance interest rate unchanged at 4.4%.

④ Powell said that the Federal Reserve made technical decisions to slow the downsizing rate.

⑤ Powell said that market indicators indicate sufficient reserves.

⑥ Powell said that this is a good time to slow down the contraction of the balance sheet.

⑦ Powell said that the decision to slow down the downsizing did not send any signals.

⑧ Powell said there are currently no plans to slow down the reduction in mortgage-backed securities (MBS) holdings.

⑨ Powell said he strongly hopes MBS will withdraw from the Federal Reserve's balance sheet; he will carefully consider whether to allow MBS to withdraw after stopping the downsizing.

5. Tariff aspects

① Powell said the survey showed that tariffs are driving inflation expectations.

② Powell said it would be difficult to determine the extent of the impact of tariffs on inflation.

③ Powell said that it is still too early to say whether it is appropriate to ignore the impact of tariffs on inflation.

④ Powell said that if commodity inflation data continues to be strong in the last two months, this is definitely related to tariffs.

⑤ Powell said that the basic inflation rate before the tariffs were implemented was basically 2.5%.

⑥ Powell said that the Federal Reserve staff had a simulated forecast on the impact of tariffs. The forecast assumes that the US will fully implement tariff retaliation.

Reminder: The Federal Reserve will hold the next round of monetary policy meetings on May 6-7 EST.

Edit/Somer