Federal Reserve Maintains Interest Rates, Signals Future Reductions

The Federal Reserve decided to keep interest rates unchanged on Wednesday, a move widely anticipated by financial markets. However, policymakers at the US central bank conveyed their expectation to lower borrowing costs by approximately 0.5% before the year’s end. This projection is set against a backdrop of decelerating economic expansion and an anticipated moderation in inflation.

Evaluating the effects of the tariffs implemented by the Trump administration, officials have slightly revised upwards their inflation forecast for the current year. Their preferred gauge for measuring price increases is now projected to reach 2.7% by the close of the year, a slight increase from the 2.5% anticipated in December. It’s important to note that the Federal Reserve aims to maintain inflation at a target rate of 2%.

Simultaneously, the Fed has adjusted its economic growth forecast downwards, from 2.1% to 1.7% for the current year, also projecting a marginal rise in unemployment rates by year-end.

According to policymakers, perceived risks have grown, with a broad consensus indicating a clouded outlook for the year ahead.

Policy Statement

“Uncertainty surrounding the economic outlook has increased,” the Fed stated in a recent policy announcement. This statement takes into consideration the initial weeks of the current administration and the preliminary execution of what officials describe as impending worldwide tariffs on imported goods. The Fed has decided to maintain its policy rate within the 4.25%-4.50% band.

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

US interest rate futures are currently factoring in a reduction of slightly over half a percentage point this year. According to LSEG estimates, traders are assigning a 62.1% probability to the Fed resuming rate cuts during its June meeting, up from 57% prior to the announcement.