March 21, 2025—At its meeting on March 19, 2025, the Federal Open Market Committee (FOMC) kept the Fed Funds target rate at 4.25 percent to 4.50 percent. The Fed also announced that it would be slowing its quantitative tightening approach. Beginning in April, the Fed will allow only $5 billion per month to mature off, down from the current rate of $25 billion per month. Most Fed watchers attribute this decision to market uncertainty due to persistent inflation and a slowing economy.
In their statement, the FOMC noted that the economy is expanding at a solid pace. However, they revised their GDP projections for 2025 down to 1.7 percent from the 2.1 percent forecasted in December. This adjustment reflects surveys of households and businesses that indicate increased uncertainty about the economic outlook. Fed officials also raised their inflation projections to 2.7 percent from 2.5 percent in January. At his press conference following the meeting, Fed Chair Jerome Powell stated, “Inflation has started to move up, we think partly in response to tariffs.” He went on to say, “Policy is not on a preset course. As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals. If the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we can ease policy accordingly. Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”
As for the future of interest rates, the dot plot graph released with the decision shows that two rate cuts are still expected this year, just as they did in December, but down from the three or four cuts projected prior to the December 2024 meeting. Looking further, only two members of the committee believe the FOMC will cut rates more than twice, down from five members who felt that way in December. The implied rate for the end of 2025 also rose to 4.00 percent, up from 3.83 percent in December.
Most economists agree that tariffs and Federal layoffs have created considerable economic uncertainty. Where opinions differ, however, is how long it will take before these policies are reflected in shifts in the growth and the U.S. Bureau of Labor Statistics Employment Situation reports, and if these economic results will be temporary or permanent. Chairman Powell and the FOMC are in a holding pattern regarding the path of interest rates, put in a “wait-and-see” state.