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US Federal Reserve Meet: Along with the decision, officials updated their rate cut projections. They see 50 basis points rate cut in 2025.
Jerome Powell says Inflation remains elevated against target of 2% and tariffs were responsible for driving inflation expectations.
US Fed Meeting: The US Federal Reserve on Wednesday kept its key interest rates unchanged at 4.25%-4.50% for the second day in a row. It is in line with the market expectations. In a post-meeting press briefing, US Fed Chairman Jerome Powell said the status quo decision was taken after reviewing economic activity. He added that inflation remains elevated against the target of 2% and tariffs were responsible for driving inflation expectations.
Along with the decision, officials updated their rate cut projections. They see 50 basis points rate cut in 2025.
The Jerome Powell-led FOMC decided to cut the 2025 GDP growth projection and said the inflation is set to rise.
In an official statement, the FOMC highlighted uncertainty around the economy.
“Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate,” the FOMC said in a post-meeting statement.
Briefing the reporters after the US Fed rate decision, Powell said, “US Fed decided to leave policy interest rate unchanged after reviewing economic activity. Inflation remains elevated against target of 2% and tariffs were responsible for driving inflation expectations.”
FOMC Outcome: How Do Markets React?
After the status quo decision, US stock market saw an uptick with the Dow Jones trading 0.56 per cent higher and the tech-heavy Nasdaq up by 1.13 per cent.
However, the dollar index eased slightly to trade at 103.67. The 10-year US bond yields were also marginally down to 4.287%.
Ahead of the meeting, the US stock markets were trading higher than the previous day though they were off their day highs. The Dow Jones were trading 0.32 per cent higher and the Nasdaq was up by 0.68 per cent at 11:06 pm (IST).
The dollar index was also trading 0.58 per cent higher at 103.84. The benchmark US 10-year bond yields were up by 0.035 at 4.318 per cent.
US Fed To Reduce Treasury Securities
“The Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities. Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion,” FOMC stated.
That means it will allow only up to $5 billion of its massive trove of Treasurys to mature each month, down from a prior cap of $25 billion.
By reinvesting more in Treasurys each month, the Fed will essentially be helping to keep longer-term yields lower than they would otherwise be.
The US Macro Data
The US unemployment rate edged up to 4.1% in February and the economy added 151,000 jobs. Inflation remains above the Fed’s 2% target with a coming read for February expected to show a slight increase, but policymakers so far have continued to bank on a drop this year.
Since Trump took office in January, his administration has overhauled trade policy, slashed the federal workforce, clamped down on immigration and reconfigured America’s relationship with its allies — structural changes that have put American consumers, businesses and investors on edge.
In the previous monetary policy review in January 2025, the US Federal Reserve had kept its key interest rates unchanged at 4.25-4.50 per cent.
Before that, on December 18, 2024, the US Fed had announced a cut in the key interest rates by 25 basis points to 4.25-4.50 per cent. It was the third rate cut by FOMC in three months, with the first rate cut announced in September (by 50 basis points) and second in November (by 25 bps). The first cut in the current rate cut cycle came in September after 2024 a gap of four years.