The Federal Reserve Maintains Interest Rates Amid Economic Uncertainty
The Federal Reserve decided on Wednesday to keep the federal funds rate in the range of 4.25% to 4.50% following its Federal Open Market Committee (FOMC) meeting, and to slow down its quantitative tightening (QT) policy.
In a statement, the Fed noted:
The statement also added, “Uncertainty regarding the economic outlook has increased, and the committee is closely monitoring the risks to its dual mandate.”
Beginning in April, the FOMC will slow the pace of reducing its securities holdings by lowering the monthly redemption cap for U.S. Treasury securities from $25 billion to $5 billion, while keeping the cap for agency debt and agency mortgage-backed securities unchanged at $35 billion per month. The committee anticipates two rate cuts by the end of this year.
Fed Chair Jerome Powell stated at a news conference that inflation related to tariffs may be temporary and that the risk of an economic recession remains low.
Nick Timiraos, the chief economic correspondent for The Wall Street Journal, known as the “Fed whisperer,” summarized the key points of the meeting on social media platform X: maintaining the interest rate unchanged, the median forecast for rate cuts remaining the same as in December last year (still forecasting two rate cuts), QT scale slowing down but Governor Chris Waller opposing this balance sheet reduction decision, and Fed officials lowering GDP forecasts while raising inflation and unemployment rate forecasts.
Timiraos also pointed out that nearly all officials believe that economic growth faces downside risks and that the unemployment and inflation forecasts carry upside risks. Furthermore, Powell stated that the QT decision is “unrelated to monetary policy,” and its goal is to ensure that QT can last longer.
The market reacted positively to the decisions made at this meeting, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite Index all rising over 1%, despite a slight pullback before the close. Bitcoin (BTC) surged from $84,000 to around $87,500, an increase of nearly 4%, but by the time this article was published, the trading price of Bitcoin had decreased to $85,970.
