The Federal Reserve left interest rates unchanged on Wednesday for a second straight meeting, as officials stuck to their previous forecast for two more cuts this year despite bracing for higher inflation and slower growth.
The central bank’s decision to hold interest rates at 4.25 percent to 4.5 percent extends a pause that has been in place since January following a series of cuts in late 2024 that lowered borrowing costs by a percentage point.
The Fed voted at an highly uncertain moment for the economy amid an onslaught of policy changes from President Trump since he returned to the White House in January. The upheaval has created complications for the central bank, which is still struggling to stamp out stubbornly high inflation and now must contend with a drastically different set of circumstances as it tries to finish off the job without harming what still appears to be a solid labor market.
In a statement released on Wednesday, the Fed noted that “uncertainty around the economic outlook has increased” even as it maintained a positive tone about the state of the economy. It said that economic activity continued to expand at a “solid pace” as the unemployment rate “stabilized at a low level.” Inflation, meanwhile, was “somewhat elevated.”
Officials also shared a new set of economic projections capturing their most comprehensive analysis yet of how their outlook has evolved now that Mr. Trump has begun to implement his economic agenda.
Most officials still expect interest rates to decline this year to 3.75 percent to 4 percent, as was the case when projections were last published in December. But eight policymakers forecast either no additional cuts or just one. Only two thought the Fed would lower rates by 0.75 percentage points, or deliver three quarter-point reductions this year.
By the end of 2026, most officials expect interest rates to decline by another half a percentage point to 3.25 percent to 3.5 percent before falling to around 3 percent in 2027.
Fed officials now see the economy growing only 1.7 percent this year, compared to their initial expectation for a 2.1 percent expansion, and predict the unemployment rate to rise to 4.4 percent. Officials also lifted their forecasts for core inflation, which strips out volatile food and energy prices, to 2.8 percent. Back in December, they expected it to end the year at 2.5 percent, already a big step up from earlier estimates.
Underlying these forecasts is a significant degree of uncertainty about how exactly Mr. Trump’s policies will take shape and how businesses and consumers will respond. Those unknowns have reinforced the Fed’s approach to stand pat for the moment. To lower interest rates again, it wants to see either more tangible evidence that inflation is indeed back on track to its 2 percent target, or signs that the economy is starting to deteriorate sharply.
One of the biggest wild cards is tariffs, which the president has threatened on a scale beyond what many economists and policymakers initially expected. After much flip-flopping, levies on certain imports from Canada, Mexico and China are now in place, along with all foreign steel and aluminum that comes into the United States. Mr. Trump and his advisers are now working on so-called reciprocal tariffs, which are due to be announced on April 2 and aim to match the tariffs that other countries charge on American exports, while also factoring in other penalties like taxes and currency manipulation.
The fear is that these policies, coupled with Mr. Trump’s efforts to slash government spending and deport immigrants, will not only intensify already sticky price pressures but also knock what has been a remarkably resilient economy off course. Taxes and deregulatory measures could help to prop up growth to some extent, which is why the Fed is primarily focused on the net effect of the government’s agenda.
Survey data suggests that Americans have already begun to sour on the outlook while also building in higher expectations about inflation, however. In a notable shift, the president and his advisers have repeatedly refused to rule out a recession, an admission that has jolted financial markets. They have also warned that consumer prices may rise temporarily. That combination would put the Fed in an even more difficult position, given its mandate to keep inflation low and stable and the labor market healthy.
Also on Wednesday, the Fed announced that it would slow the reduction of its roughly $6.8 trillion balance sheet in order to avoid amplifying disruptions that could crop up in funding markets due to the ongoing standoff over the debt ceiling, which limits how much money the government can borrow to meet its financial obligations. The Fed will now cap the amount of Treasury securities it will allow to roll off its balance sheet at $5 billion per month, down from $25 billion. It kept the monthly cap unchanged for mortgage-backed securities. Christopher Waller, a governor, voted against the decision.
