Federal Reserve Holds Steady, Signals Future Rate Cuts

WASHINGTON: The Federal Reserve maintained interest rates at their current level on Wednesday, a widely anticipated decision. However, the central bank’s officials suggested they still foresee reducing borrowing costs by approximately 0.5% by the close of the year, amidst decelerating economic expansion and an expected moderation in inflation.

Assessing the impact of the previous administration’s tariff implementations, Fed officials have adjusted upwards their inflation projections for the current year. Their preferred gauge of price increases is now expected to reach 2.7% by year-end, a rise from the 2.5% forecast in December. The Federal Reserve aims to maintain inflation at 2%.

Concurrently, the outlook for economic growth has been revised downwards from 2.1% to 1.7% for the current year, with a slight uptick in unemployment anticipated by the year’s conclusion.

Decision-makers have expressed heightened concerns, with a widespread consensus indicating increased ambiguity surrounding the year’s economic trajectory.

“Uncertainty pertaining to the outlook has grown,” the Federal Reserve stated in its updated policy statement. This statement takes into consideration the early stages of the new administration and the initial introduction of what officials describe as forthcoming global tariffs on imported goods. The Fed has kept its benchmark rate within the 4.25%-4.50% band.

Following the release of the Fed’s policy statement and forecasts, US equities experienced modest gains. The Dow Jones Industrial Average saw an increase of 0.5%, while the technology-focused Nasdaq Composite rose by 0.7%.

US interest rate futures factored in a reduction of just over 0.5% this year. According to LSEG estimations, traders are pricing in a 62.1% probability of the Fed resuming rate cuts during its June meeting, compared to a 57% likelihood prior to the announcement.