As expected, the Fed kept interest rates unchanged at the March 19 meeting, maintaining the federal funds rate in the 4.25–4.50% range. Fed Chair Jerome Powell highlighted economic uncertainty resulting from federal layoffs and trade tariffs as key factors behind the upward revision of inflation expectations and the downward revision of growth. Despite this, Powell downplayed concerns about the slowing growth, noting that major economic indicators continue to show a fairly robust economy.
In the quarterly economic projections, GDP growth for this year was revised downward from 2.1% to 1.7%, with the economy expected to grow at a rate of 1.8% in 2026 and to maintain that pace in the following years. An increase in the unemployment rate is also projected, reaching 4.3% in 2026 and 2027, a level Powell described as consistent with a “labor market in balance.”
Inflation forecasts for 2025 were also revised upward, with the PCE (headline) and Core indices increased by 20 and 30 basis points, respectively, largely due to the expected impact of tariffs. However, the Fed continues to view these price increases as transitory, keeping long-term inflation expectations unchanged and projecting convergence to the 2% target by 2027. Despite the weaker growth outlook and stronger inflationary pressures, the Fed’s quarterly-updated dot plot maintained the projection of a total of 50 basis points in rate cuts by the end of 2025. However, the distribution of FOMC members’ rate expectations shifted slightly in a more hawkish direction, reflecting uncertainty around inflation and economic growth.
Powell reconheceu a crescente incerteza económica, observando que tanto os riscos inflacionários como os de crescimento tornaram-se mais pronunciados.
Although the Fed did not change its benchmark interest rates, it announced that it would slow its quantitative tightening (QT) program starting in April. The central bank will reduce the monthly Treasury redemption limit from $25 billion to $5 billion. Fed Governor Christopher Waller disagreed with this decision, preferring to keep the QT program unchanged while rates remain stable.
Regarding upcoming meetings, Powell reiterated that the central bank is in no rush to adjust benchmark policy rates, emphasizing the need for greater clarity on economic conditions before making any decisions. These statements suggest that the Fed is likely to maintain a cautious stance, extending the current pause in the rate-cutting cycle.
Market expectations remained largely unchanged following Powell’s comments. Investors continue to anticipate a total of 50 basis points in rate cuts by the end of the year, with a rising probability of an additional 25 basis point reduction by December 2025.
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