FED Holds Rates Steady at 4.25%-4.5%, Signals a More Cautious Approach to Tightening

March 19, 2025 – The Federal Reserve has decided to keep interest rates unchanged in the 4.25%-4.5% range, aligning with market expectations that no imminent rate cuts are on the horizon. This marks the second consecutive meeting where the Fed has opted for stability following a total of 100 basis points of rate cuts in late 2024.

Fed Chair Jerome Powell delivered a mixed message during his press conference, offering both hawkish and dovish signals. The official statement maintained a firm stance on inflation, emphasizing that price growth remains above the 2% target and that the labor market continues to show resilience. However, the Fed also announced a slowdown in its quantitative tightening (QT) program starting in April, signaling a more accommodative stance. By reducing the pace of balance sheet runoff, the central bank is effectively injecting more liquidity into the financial system.

Powell addressed concerns about the economic outlook, particularly the impact of potential tariff increases under President Trump. He acknowledged that such policies could push inflation higher, leading the Fed to revise its 2025 inflation forecast from 2.5% to 2.8%, while lowering GDP growth projections from 2.1% to 1.7%.

Despite earlier dot plot projections suggesting two rate cuts in 2025, Powell made it clear that the Fed remains flexible. He cautioned that these forecasts are not set in stone and will be adjusted based on economic conditions. If growth weakens further, the Fed is open to additional rate cuts.

The Fed's stance—maintaining a firm grip on inflation while easing liquidity constraints—leaves markets in a state of uncertainty. Investors will closely watch upcoming data to gauge the likelihood of a policy shift in the coming months.