At 2:00 AM Beijing time on Thursday, the Federal Open Market Committee (FOMC) of the Federal Reserve announced its latest interest rate decision, keeping the federal funds rate target range at 4.25%–4.5%, in line with market expectations.
Following the announcement, the three major U.S. stock indices surged in the short term, spot gold prices rose, and the U.S. dollar index dropped nearly 20 points.
The FOMC statement revealed that the decision was passed with an 11-1 vote, with Fed Governor Christopher Waller being the only dissenter. While Waller supported keeping the policy rate unchanged, he preferred not to alter the pace of balance sheet reduction.
Economic Outlook & Fed’s Dilemma
The statement also acknowledged high uncertainty in the current economic environment, removing previous language suggesting risks were “roughly balanced.”
The Fed continues to face pressure due to ongoing trade and tariff policies under President Trump, which have fueled concerns over a potential economic slowdown and rising inflation. This combination creates a policy dilemma for the central bank, as it must balance inflation control with economic stability.
Despite uncertainties, the Fed’s dot plot indicates expectations of two rate cuts in 2025.
Rate Cut Projections for 2025
Among the 19 Fed officials surveyed:
- 4 expect no rate cuts
- 4 foresee one rate cut
- 9 anticipate two rate cuts
- 2 project three rate cuts
Revised Economic Forecasts
Fed officials have downgraded economic growth projections and adjusted inflation forecasts:
- GDP Growth (2024): Revised down to 1.7% (previously 2.1%)
- Core PCE Inflation (2024): Revised up to 2.8% (previously 2.5%)
Long-term projections for 2026 and 2027 were also adjusted:
- GDP Growth (2026–2027): Lowered to 1.8%, down from 2.0% (2026) and 1.9% (2027)
- Core PCE Inflation (2026–2027): Remains at 2.2% and 2.0%, respectively
Balance Sheet Reduction to Slow
Starting April 1, the Fed will slow the pace of balance sheet reduction:
- The monthly cap on U.S. Treasury bond runoff will decrease from $25 billion to $5 billion.
- The cap on mortgage-backed securities (MBS) runoff will remain at $35 billion per month.
Conclusion
The Fed remains cautious amid economic uncertainties, balancing the risks of inflation and slower growth. While it held rates steady in this decision, the central bank signaled two potential rate cuts in 2025, reflecting concerns about economic headwinds.
With slower balance sheet reduction and adjusted growth expectations, the Fed’s next steps will be closely watched by investors and economists alike.
