Today's Edition
WASHINGTON (Reuters)
The Federal Reserve held interest rates steady on Wednesday, as expected, but U.S. central bank policymakers indicated they still anticipate reducing borrowing costs by half a percentage point by the end of this year in the context of slowing economic growth and, eventually, a downturn in inflation.
Taking stock of the Trump administration's rollout of tariffs, Fed officials actually marked up their outlook for inflation this year, with their preferred measure of price increases expected to end the year at 2.7% versus the 2.5% pace anticipated in December. The Fed targets inflation at 2%.
But they also marked down the outlook for economic growth for this year from 2.1% to 1.7%, with slightly higher unemployment by the end of this year.
Policymakers said risks had increased, with a near-unanimous sentiment in saying the outlook for the year was muddled.
"Uncertainty around the outlook has increased," the Fed said in a new policy statement that accounts for the first weeks of the new Trump administration and the initial rollout of what White House officials say will ultimately be global tariffs on imported goods. The Fed left its policy rate in the 4.25%-4.50% range.
In a press conference following the outcome of the Fed meeting, Fed Chairman Jerome Powell said the current landscape of the economy is one where uncertainty is "unusually elevated," while noting "our current policy stance is well positioned to deal with the risk and uncertainties we face."
He added the right stance for the Fed right now is to "wait here for greater clarity."
U.S. stocks extended their gains slightly after the release of the Fed's policy statement and projections, with the Dow Jones industrial average up 0.5% and the tech-heavy Nasdaq Composite up 0.7%.
U.S. interest rate futures priced in a cut of just over half a percentage point this year, with traders seeing a 62.1% chance of the Fed resuming rate cuts at its meeting in June, according to LSEG estimates, compared with a 57% chance before the announcement.
The dollar pared some of its earlier gains, with an index of major currencies up 0.5%. U.S. Treasury yields also eased slightly, with the benchmark 10-year note yield up 1.7 basis points on the day to 4.298%.
"The Fed is as lost in the wilderness as the rest of us trying to decipher the continual shifts in economic policy from 1600 Pennsylvania Avenue," said Inflation Insights' Omair Sharif, referring to the street address of the White House. "Beyond the cut to median growth this year and the boost to median inflation, the most telling aspect of the (projections) is the shift higher in uncertainty."
