Following its March meeting, the Federal Reserve kept the target range at 3.5%–3.75%. Fed Chair Jerome Powell said current policy is consistent with the goals of maximum employment and price stability.
The regulator chose to pause amid macroeconomic uncertainty and rising inflationary pressure.
How Tariffs Have Affected Price Dynamics
Inflation remains above the 2% target: by the end of February, core PCE reached 3% year-over-year, while headline PCE stood at 2.8%.
Powell linked the rise in goods inflation to existing trade tariffs. Short-term inflation expectations rose with oil prices as markets reacted to supply disruptions from the Middle East.
“Against this backdrop, the Fed has revised its inflation forecast for the year to 2.7%,” he said.
State of the Economy and Labor Market
The US economy continues to grow steadily, supported by consumer spending and business investment, while the housing market continues to lag. In its updated outlook, the Fed expects GDP to grow by 2.4% this year and 2.3% next year.
Unemployment held at 4.4%, while hiring slowed. The regulator attributes this to slower labor force growth due to lower immigration and participation rates, as well as weaker demand from employers.
The Regulator’s Next Steps
From September to December last year, the Fed cut rates by a total of 0.75 percentage points, bringing them back to neutral levels. The regulator is using the current pause to stabilize the labor market and bring inflation back onto a downward path.
Committee members see the rate at 3.4% by the end of this year and 3.1% by the end of next year. Powell emphasized that there is no preset course of action.
“Decisions on rate adjustments will be made at each meeting based on incoming macroeconomic data and the current balance of risks,” he said.