Fed holds interest rates steady, still sees two cuts coming this year

• Faced with pressing concerns over the impact tariffs will have on a slowing economy, the rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. Markets had been pricing in virtually zero chance of a move at this week’s two-day policy meeting.
• Along with the decision, officials updated their rate and economic projections for this year and through 2027 and altered the pace at which they are reducing bond holdings.
• Despite the uncertain impact of President Donald Trump’s tariffs as well as an ambitious fiscal policy of tax breaks and deregulation, officials said they still see another half percentage point of rate cuts through 2025. The Fed prefers to move in quarter percentage point increments, so that would mean two reductions this year. However, in a news conference, Federal Reserve Chair Jerome Powell said the central bank would be comfortable keeping interest rates elevated if conditions warranted it.
• In its post-meeting statement, the FOMC noted an elevated level of ambiguity surrounding the current climate.
• Powell noted that there had been a “moderation in consumer spending” and anticipates that tariffs could put upward pressure on prices. These trends may have contributed to the committee’s more cautious economic outlook.
• The group downgraded its collective outlook for economic growth and gave a bump higher to its inflation projection. Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December. On inflation, core prices are expected to grow at a 2.8% annual pace, up 0.3 percentage points from the previous estimate.          

(Source: CNBC)