Federal Reserve Keeps Interest Rates Steady in the middle of the Inflation Concerns

Market Performance

The US Federal Reserve has decided to maintain the benchmark interest rate within the 4.25–4.50 per cent range. This decision comes amidst rising concerns over inflation, influenced by ongoing tariff policies. The Federal Open Market Committee (FOMC) highlighted economic uncertainties as a key factor in steady rates following the previous rate cut in December 2024.

Policy Decision and Economic Factors

The Federal Reserve acknowledged inflationary pressures, partially driven by tariff-related factors. Surveys have indicated an increase in inflation expectations, reflecting the broader economic impact of tariff policies.

Interest Rate Decision

• The FOMC opted to keep the benchmark interest rate unchanged at 4.25–4.50 per cent.
• Economic uncertainty and potential inflation risks were cited as primary reasons for maintaining the current rate.

Future Rate Projections

• Policymakers indicated the possibility of a cumulative 0.50 percentage point reduction in 2025.
• The projections suggest two quarter-point cuts within the year, aligning with the previous forecast from December 2024.

Economic Adjustments and Market Strategies

Balance Sheet Adjustments

• The Federal Reserve plans to slow down the reduction of its securities holdings.
• Effective April, the monthly redemption cap for Treasury securities will be lowered from $25 billion to $5 billion.
• The agency debt and mortgage-backed securities cap remains unchanged at $35 billion.

Economic Projections

• The Federal Reserve has increased its core inflation estimate for 2025 to 2.8 per cent, up from the previous 2.5 per cent.
• The projected economic growth rate has been lowered to 1.7 per cent, down from the earlier 2.1 per cent forecast.

Summary

The Federal Reserve has opted to maintain current interest rates without any adjustments underscores its cautious approach to balancing economic growth and inflation risks. While policymakers anticipate rate cuts later in the year, the central bank has also revised its economic outlook, adjusting its inflation and growth projections. The move to slow the pace of balance sheet reductions reflects an evolving strategy to manage economic stability amidst ongoing policy uncertainties