Federal Reserve Maintains Interest Rates, Signals Future Cuts

WASHINGTON: The Federal Reserve decided to keep interest rates unchanged on Wednesday, aligning with widespread expectations. However, the central bank’s policymakers suggested they still foresee a reduction in borrowing costs by half a percentage point before 2025 concludes. This outlook is shaped by a moderation in economic expansion and an anticipated easing of inflationary pressures.

Considering the tariffs implemented by the previous administration, Federal Reserve officials have slightly revised their inflation forecast upwards for the current year. Their preferred gauge of price increases is now projected to reach 2.7% by year-end, a slight increase from the 2.5% anticipated in December. It is important to note that the Fed aims for an inflation rate of 2%.

Simultaneously, the economic growth projection for this year has been adjusted downwards from 2.1% to 1.7%, with a marginal increase in unemployment expected by the end of the year.

According to policymakers, the risks have grown, and there is widespread agreement that the outlook for the year is unclear.

“Uncertainty surrounding the outlook has increased,” the Fed stated in its updated policy statement. This assessment takes into account the initial weeks of the current administration and the preliminary introduction of tariffs on imported goods. The Fed has maintained its policy rate within the 4.25%-4.50% range.

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 Nasdaq Composite, which is heavily weighted towards technology stocks, increased by 0.7%.

US interest rate futures are currently pricing in a reduction of just over half a percentage point this year. Traders estimate a 62.1% probability of the Fed resuming rate cuts during its June meeting, compared to a 57% probability before the announcement, according to LSEG estimates.