The Federal Reserve keeps interest rates unchanged, may cut rates twice within the year

The Federal Reserve announced on Wednesday (March 19) that it would maintain the benchmark federal funds rate unchanged in the range of 4.25% to 4.5%.

Since December 2024, the Fed has maintained a wait-and-see attitude on interest rates. However, the Fed has lowered its economic growth forecast for 2025 and raised its inflation expectations.

Officials expect the U.S. GDP growth rate in 2025 to be 1.7%, lower than the 2.1% forecast in December 2024.

Following the Fed’s announcement of its interest rate meeting results, the three major U.S. stock indexes continued to rise. The Dow Jones Industrial Average rose by 444 points, an increase of 1%. The S&P 500 index rose by 1.3%, and the Nasdaq Composite Index rose by 1.6%.

The stock market recovered from earlier declines, driven by Nvidia and other large tech companies’ stock price drops, on Tuesday morning.

The yield on the 10-year U.S. Treasury bond has rapidly declined from its high of 4.3%.

The U.S. dollar’s exchange rate has also weakened.

Gold prices remain at historic highs, briefly surpassing a new record of $3,050 per ounce.

According to a statement released after the Fed’s two-day meeting, a dot plot showed that out of 19 voting officials, 11 expect the Fed to cut interest rates twice this year, a lower proportion than the expectation in December 2024, when 15 officials predicted two rate cuts.

Officials also forecast that the inflation rate will rise from 2.5% to 2.7%. This adjustment may reflect expectations on President Trump’s tariff policies, with officials expecting inflation to eventually slow down in 2026 and 2027.

Inflation has taken a significant step towards the Fed’s established target, dropping from 5.5% two years ago to 2.5% in January.

The Wall Street Journal reported that Fed officials are hoping to avoid a repeat of the 2022-23 experience, where significant rate hikes led to price increases and slowed wage growth, unnecessarily slowing economic activity. Consequently, they had to cumulatively cut rates by 1% from September to December 2024, while also wanting to maintain recent progress on inflation.

President Trump’s policies since taking office in January, including deregulation and measures to lower energy prices, may stimulate growth and continue to cool off inflation. However, these policies have made it more challenging for the Fed to predict the economic and inflation trajectory.

Efforts such as significant cuts to federal government employment and spending may impact consumer sentiment. The U.S.’ commitment to imposing high tariffs on major trading partners, along with fluctuating policies, has left businesses feeling uncertain, leading investors to adopt a wait-and-see approach.

The Fed also raised its unemployment rate forecast, stating in its policy statement that uncertainty about economic prospects has increased. They removed the language from the previous meeting that described inflation and strong employment risks as “roughly balanced.”

Of note, the Fed approved further slowing of the $6.8 trillion quantitative tightening program, which includes gradually reducing the balance sheet, to avoid market turmoil after Congress raised the federal debt ceiling in 2024.

Starting in April, the Fed will allow $5 billion in U.S. Treasury securities to mature each month, without reinvesting the proceeds in new securities, lower than the current $25 billion.