Shaun
The US Federal Reserve announced its second monetary policy decision for 2025 after a two-day Federal Open Market Committee (FOMC) meeting and kept its benchmark interest rate steady at 4.25-4.50 per cent. The US central bank kept the key rates steady for the second straight meeting after its January policy meeting review— the first policy decision under Donald Trump’s presidency.
US Fed chair Jerome Powell-led rate-setting panel projected two quarter-percentage-point rate cuts by the end of this year. “The committee would be prepared to adjust the stance of the monetary policy as appropriate if risks emerge that could impede the attainment of the goals,” said the FOMC in its statement.
In a post-policy press conference, Jerome Powell said that Donald Trump’s tariff policies and escalating global trade tensions may have temporarily dragged the US economy towards slower growth and higher inflation. The central bank also revised its economic projections as part of the ‘dot plot’ graph, hiking the year-end US inflation estimate and downsizing the US economic growth forecast.
The US central bank maintained its federal funds rate at 4.25-4.50 per cent. The Fed cut its benchmark interest rate by a full percentage point in 2024 but has kept rates on hold now as it waits for further evidence that inflation will fall and, more recently, for more clarity about the impact of Trump’s policies.
“We’re not going to be in any hurry to move,” said Powell. “Our current policy stance is well-positioned to deal with the risks and uncertainties we face…The right thing to do is to wait here for greater clarity about what the economy is doing.” Powell clarified that if data deteriorates, the Fed will act quickly to fulfil its mandate of maximizing employment and keeping inflation in check.
Despite holding the key rates steady again, US Fed policymakers still expect the central bank to deliver two quarter-percentage-point (25 basis points) rate cuts by the end of this year, matching their projection in December 2024.
“We understand that sentiment has fallen off pretty sharply, but economic activity has not yet,” said Powell. ‘The economy seems to be healthy.’ He added that uncertainty of economic outlook is ‘unusually elevated’ and that the Fed is prepared to be patient and see how the economy evolves before making further moves.
“In assessing the appropriate stance of monetary policy, the committee will monitor the implications of incoming information for the economic outlook. The assessments will consider a wide range of information, including readings on labour market conditions, inflation pressures and expectations, and financial and international developments,” said the FOMC in its policy statement.
According to a set of quarterly economic projections, the US Fed now expects the economy to grow more slowly this year and next than it did three months ago. Fed officials marked down their outlook for economic growth for this year to 1.7 per cent from the previous 2.1 per cent and 1.8 per cent in 2026.
US Fed policymakers now see their preferred measure of inflation ending the year at 2.7 per cent, compared to the 2.5 per cent pace anticipated in December. Both are above the central bank’s two per cent target. The Fed also expects the unemployment rate to tick higher, to 4.4 per cent, by the end of this year from 4.1 per cent now.
Powell added the longer-run measures the Fed regards as most important to achieving its policy goals “haven’t moved much.” Powell told reporters that the US recession risk had risen slightly recently but was not a cause for concern. “If you go back two months, people were saying that the likelihood of a recession was extremely low,” he said. “It has moved up, but it’s not high.”
The US Fed also said it would slow the rate at which it reduces its Treasury holdings, which grew during and after the COVID pandemic. Previously it had allowed $25 billion of Treasurys to mature each month without reinvesting the proceeds. Now, it will allow only $5 billion to mature each month.
‘Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion,” said the FOMC in its statement. US Fed Reserve governor Christopher Waller voted against slowing the Treasury purchases.
The Fed still allows $35 billion of mortgage-backed securities to mature each month. The US Fed first started slowing the pace at which it shrinks its portfolio of assets in June 2024— a bid to ease potential strain on money market rates.
The S&P 500 Index spiked higher by 1.8 per cent before fading into the close. The benchmark’s 1.1 per cent gain still marked the best Fed-decision day since July. The tech-heavy Nasdaq 100 Index jumped over two per cent at its highest.
The Dow Jones Industrial Average rose 383.32 points, or 0.92 per cent, to 41,964.63, the S&P 500 gained 60.63 points, or 1.08 per cent, to 5,675.29 and the Nasdaq Composite rose 246.67 points, or 1.41 per cent, to 17,750.79.
Gold prices soared to an all-time high following Powell’s remarks and after the US Fed anticipated further cuts this year. Spot gold rose 0.5 per cent to $3,047.80 per ounce after hitting an all-time high of $3,051.99 earlier in the session.
