Central Bank Holds Rates, Slashes Growth Outlook, Signals Higher Inflation

Federal Reserve Holds Rates Steady, Revises Growth and Inflation Forecasts

The U.S. Federal Reserve opted to maintain its benchmark interest rate at 4.25%-4.50% on Wednesday, marking the second consecutive pause following three rate cuts at the end of 2024. Policymakers continue to project that the federal funds rate will end 2025 at 3.9%, suggesting two rate cuts by year-end.

The central bank’s updated economic projections signal a slowdown in growth, with the GDP forecast for 2025 revised down to 1.7% from December’s 2.1% estimate. Growth expectations for 2026 and 2027 were also slightly reduced.

“The economic outlook has become increasingly uncertain,” the Fed noted in its statement, an apparent reference to the uncertainty surrounding President Trump’s proposed tariffs and their potential impact on inflation and trade.

Meanwhile, core PCE inflation is now projected to rise to 2.8% in 2025, up from the prior 2.5% forecast. Estimates for 2026 and 2027 remain steady at 2.2% and 2.0%, respectively.

The Fed’s “dot plot” continues to indicate that officials expect the fed funds rate to finish 2025 at 3.9%, in line with December projections. Expectations for 2026 and 2027 remain at 3.4% and 3.1%, respectively.

Additionally, the Fed announced that it would slow the pace of its balance sheet runoff, known as quantitative tightening (QT). Starting April 1, the monthly reduction of Treasury securities will be lowered to $5 billion from the previous $25 billion.

Bitcoin (BTC) experienced brief volatility following the announcement but drifted lower, trading at $83,500 at press time, down from just over $84,000 before the news.

U.S. stocks remained in positive territory, while the yield on the 10-year Treasury slipped two basis points to 4.28%. Gold, which has been a standout performer in recent weeks, remained near record highs at $3,048 per ounce.

Investor sentiment has been pressured in recent weeks due to concerns over Trump’s proposed tariffs and their potential impact on inflation and economic growth. The Fed’s hawkish stance in December and January also dampened expectations for looser financial conditions in the near term, weighing on cryptocurrencies and equities.

Fed Chair Jerome Powell is set to speak at 2:30 p.m. Eastern Time (18:30 UTC), with investors closely watching for additional signals about the central bank’s policy direction.

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