Federal Reserve Maintains Steady Interest Rates Amid Economic Uncertainty

WASHINGTON: The Federal Reserve opted to maintain stable interest rates on Wednesday, aligning with widespread expectations. However, policymakers at the US central bank signaled their continued anticipation of reducing borrowing costs by approximately 0.5% before the year concludes. This outlook is shaped by decelerating economic expansion and a projected easing of inflationary pressures.

Evaluating the effects of the current administration’s tariff implementations, Federal Reserve authorities have slightly elevated their inflation projections for the current year. Their preferred metric for gauging price escalations is now expected to register 2.7% by year’s end, a marginal increase from the 2.5% forecast in December. It’s worth noting that the Federal Reserve aims for an inflation rate of 2%.

Simultaneously, the growth forecast for the current year has been adjusted downward from 2.1% to 1.7%, accompanied by a minor uptick in anticipated unemployment rates by the close of the year.

According to policymakers, the risks have grown, and there was a nearly universal sense that the outlook for the year ahead was unclear.

In a revised policy declaration that acknowledges the initial weeks of the new administration and the preliminary introduction of tariffs on imported goods, which White House officials claim will eventually be implemented on a global scale, the Fed stated that “Uncertainty surrounding the outlook has increased.” The Fed maintained 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 rose by 0.5%, while the tech-heavy Nasdaq Composite increased by 0.7%.

US interest rate futures indicated a reduction of slightly over half a percentage point for the year. According to LSEG estimates, traders perceive a 62.1% probability of the Fed resuming rate cuts at its June meeting, a rise from the 57% probability before the announcement.