The Federal Reserve left its benchmark interest rate unchanged on Wednesday, keeping the target range for the federal funds rate at 4.25% to 4.50%. Citing persistent inflation and growing economic uncertainty, Fed Chair Jerome Powell emphasized the central bank’s commitment to its dual mandate of maximum employment and stable prices.
While economic activity continues to expand and the labor market remains solid—with average monthly job gains of 200,000 and a 4.1% unemployment rate—Powell acknowledged that inflation remains “somewhat elevated,” especially following recent spikes in goods prices. New projections suggest that inflation will run at 2.7% in 2025, with core inflation slightly higher at 2.8%.
The Federal Open Market Committee (FOMC) also announced it would slow the pace of its balance sheet runoff starting in April, reducing the monthly cap on Treasury redemptions from $25 billion to $5 billion. The move aims to prevent excessive tightening in money markets as reserves show early signs of stress.
Despite stronger-than-expected inflation readings—attributed in part to new tariffs—the Fed is maintaining its outlook for gradual easing later this year. The median forecast among FOMC members still calls for two rate cuts in 2025, keeping longer-term inflation expectations anchored near 2%. Powell noted, however, that the central bank is prepared to hold rates steady if inflation remains stubbornly high or to adjust policy if economic conditions deteriorate.
The Fed’s latest Summary of Economic Projections lowered its GDP growth estimate for 2025 to 1.7%, down from 2.1%, and expects unemployment to rise modestly to 4.4%. Powell described the economic outlook as unusually uncertain, shaped in part by ongoing policy shifts from the new administration, especially in trade and regulation.
Consumer sentiment and business confidence have declined, but Powell cautioned against overreacting to soft survey data in the absence of a corresponding downturn in hard economic indicators. “We don’t need to be in a hurry to adjust our policy stance,” Powell said. “We are well positioned to wait for greater clarity.”
Looking ahead, the Fed continues its five-year review of its monetary policy framework, with a focus on labor dynamics and inflation expectations. The review is expected to conclude by late summer.
While acknowledging short-term inflation risks, Powell reaffirmed the Fed’s belief that recent price pressures may be transitory and manageable, provided inflation expectations remain stable. “We understand that our actions affect communities, families, and businesses across the country,” he said. “Everything we do is in service to our public mission.”