Federal Reserve Holds Steady, Signals Future Rate Cuts

WASHINGTON: The Federal Reserve opted to maintain stable interest rates on Wednesday, aligning with widespread expectations. However, policymakers at the US central bank indicated their continued anticipation of reducing borrowing costs by approximately half a percentage point before the close of the year. This outlook is set against the backdrop of a decelerating economy and an anticipated moderation in inflation.

Assessing the consequences of the tariffs implemented by the previous administration, Federal Reserve officials have adjusted their inflation forecast upwards for the current year. Their preferred metric for gauging price increases is now projected to reach 2.7% by year-end, a rise from the 2.5% predicted back in December. The Federal Reserve aims to maintain inflation at a 2% level.

Simultaneously, the growth outlook for the current year has been revised downward from 2.1% to 1.7%, accompanied by a slight uptick in the anticipated unemployment rate by the end of the year.

According to policymakers, the risks have grown, expressing a nearly unified view that the outlook for the year ahead is unclear.

“Uncertainty surrounding the economic outlook has intensified,” the Fed stated in its updated policy announcement. This reflects the early phases of the new administration and the initial execution of what administration officials have suggested would ultimately be broad tariffs on imported goods. The central bank held its key policy rate steady in a target range of 4.25%-4.50%.

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

US interest rate futures indicated a reduction of just over half a percentage point this year. Traders assessed a 62.1% likelihood of the Fed resuming rate cuts during its June meeting, based on LSEG estimates. This is compared to a 57% probability assessed before the announcement.