The Federal Reserve kept interest rates unchanged in a range of 4.25% to 4.5% at its March meeting on Wednesday and signaled it will cut rates two more times this year, in line with its previous expectation from December.
Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its “dot plot,” which maps out policymakers’ expectations for where interest rates could be headed in the future.
The central bank raised its respective projections for year-end PCE inflation and the unemployment rate. At the same time, it lowered its economic growth forecast, noting in the policy statement, “Uncertainty around the economic outlook has increased.”
Fed officials see the fed funds rate falling to 3.9% this year, on par with its previous December projection. Coming into the decision, markets had priced in two to three additional rate cuts this year, according to Bloomberg data. The central bank slashed interest rates by a total of 100 basis points in 2024.
In 2026, officials see two additional cuts, bringing the fed funds rate down to 3.4%, matching December.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Fifteen officials predict a rate cut this year, with two officials seeing a decrease of more than 0.5%, while four officials see no change, signaling a more hawkish stance compared to December, when just one official saw no change. Four FOMC members expect only one cut.
This month’s expectations for 2025 rates were also less widely distributed compared to the previous projections.
The updated forecasts suggest the Federal Reserve will continue to take a more cautious approach as FOMC leaders attempt to understand the Trump administration’s shifting trade narrative and other policy unknowns, including recent efforts to cut government jobs from Elon Musk’s Department of Government Efficiency (DOGE).
“Although the FOMC stuck to its median projection for two interest rate cuts this year, some officials now share our view that further loosening is unlikely and we continue to think that Fed officials are underestimating the extent to which tariffs are likely to push up inflation,” Capital Economics deputy chief North America economist Stephen Brown wrote in reaction to the decision.
At the same time, fears over stagflation, a bleak economic scenario in which growth stalls, inflation persists, and unemployment rises have escalated in recent weeks — and Wednesday’s projections underscored that sentiment with the central bank lowering its forecast for economic growth and revising both its inflation projection and unemployment estimates higher.
