The Federal Reserve on Wednesday announced that it will leave its benchmark interest rate unchanged as policymakers continue to assess uncertainty around inflation and economic conditions in light of federal policy shifts.
The central bank’s decision leaves the benchmark federal funds rate at a range of 4.25% to 4.5%.
The move comes after the Fed left rates at that level at its previous meeting in January, which came on the heels of three consecutive rate cuts at its preceding meetings — which involved a 50-basis-point cut in September and a pair of 25-basis-point reductions in November and December.
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The Federal Open Market Committee (FOMC), which guides the central bank’s monetary policy moves, noted in its announcement that “[u]ncertainty around the economic outlook has increased” and added it is focused on risks to both sides of its dual mandate to promote maximum employment and keep inflation at 2% over the long-run.
In addition to announcing its decision on interest rates, the FOMC released a summary of economic projections that showed central bank policymakers are forecasting two 25-basis-point interest rate cuts this year, followed by two cuts of that size in 2026 and one in 2027.
Policymakers projected slower economic growth and higher unemployment in 2025 than in their last projections released in December.
They see real gross domestic product (GDP) growing 1.7% as of the end of 2025, down from a 2.1% estimate, while the unemployment rate was projected to be 4.4% in December — up from 4.3% in the last projections. The unemployment rate was 4.1% in February.
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The Fed’s economic projections also show the personal consumption expenditures (PCE) index, policymakers’ preferred inflation gauge, at 2.7% at the end of this year — higher than the 2.5% estimate released at the end of last year. That’s slightly above the 2.5% PCE reading the Commerce Department reported for February.
Fed Chair Jerome Powell noted in his opening remarks at a press conference, “Some near-term measures of inflation expectations have recently moved up. We see this in both market- and survey-based measures. And survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.”
He also said that the “labor market is not a source of significant inflationary pressures,” and noted that “inflation has eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal.”
Powell was asked about how much of the higher inflation forecast is due, at least in part, to tariffs.
“You may have seen that goods inflation moved up pretty significantly in the first two months of the year. Trying to track that back to actual tariff increases, given what was tariffed and what was not — very, very challenging,” Powell said. “So some of it — the answer is clearly some of it, a good part of it, is coming from tariffs. But we will be working, and so will other forecasters, to try to find the best possible way to separate non-tariff inflation from tariff inflation.”
FOX Business’ Edward Lawrence asked the Fed chair about the timing of when the impact of the Trump administration’s policies will be seen in economic data like unemployment and inflation.
“For example, the layoffs that are happening here, they’re certainly meaningful to the people involved, and they may be meaningful to a particular neighborhood, or region, or area. But at the national level, they’re not significant yet, but we don’t know. We don’t know how far that will go, we’ll find out much more,” Powell said.
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In response to a question about a recent forecast that suggested there is a high probability of recession and whether he is concerned about that. Powell noted that historically, at any given time, there is a 1-in-4 probability of a recession in the next 12 months.
“The question is whether, in this current situation, those possibilities are elevated. I will say this, we don’t make such a forecast. If you look at outside forecasts, a number of forecasters have generally raised, a number of them have raised their possibility of a recession somewhat, but still at relatively moderate levels. They were extremely low. If you go back two months, people were saying that the likelihood of recession was extremely low,” he said. “So it has moved up, but it’s not high.”
When asked about whether he anticipates the Fed cutting interest rates in May, Powell noted that he thinks the central bank is “well positioned to wait for further clarity and not in any hurry.”
The market still sees the Fed as likely to cut rates in May, with the CME FedWatch tool putting the probability at nearly 55%. It also shows a roughly equal probability between the Fed ending the year having cut two or three times in 2025, with a 31% chance of three cuts and a 30% likelihood of two cuts.
“While the outcome of this meeting was broadly in line with market participant expectations, it clearly shows the conundrum the Fed has in balancing growth and inflation expectations,” said Charlie Ripley, senior investment strategist for Allianz Investment Management.
Ripley noted that there is a wide range of uncertainty about inflation expectations that will likely keep the Fed from cutting and added, “With a sit-on-your-hands policy approach in play, this Fed meeting showcased the difficulty in making decisions in periods of uncertainty and acknowledged that perhaps the best action is no action at all.”
The Federal Reserve’s next policy meeting is scheduled for May 6-7.
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