The Federal Reserve kept interest rates unchanged in a range of 4.25%-4.5% at its March meeting on Wednesday and signaled it maintain its previously expected pace of cuts.
Fed officials see the fed funds rate falling to 3.9% this year, on par with its previous December projection.
The central bank also 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.”
15 officials predict a rate cut this year, with two officials seeing a decrease of more than 0.50%, while four officials see no change, signaling a more hawkish stance compared to December. 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 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).
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.
The SEP indicated the Federal Reserve sees core inflation hitting 2.7% next year, higher than December’s projection of 2.5%, before cooling to 2.2% in 2026 and 2.0% in 2027.
Similarly, the Fed raised its forecast for the unemployment rate to 4.4% this year, higher than its previous forecast of 4.3%. Unemployment is expected to tick down to 4.3% in 2026 and remain at that level through 2027.
The Fed also downgraded its previous forecast for US economic growth, with the economy expected to grow at an annualized pace of 1.7% this year before reaching 1.8% growth in 2026 and 2027.
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