Fed's Rate Decision
The Federal Reserve on Wednesday left interest rates unchanged amid mounting uncertainty over the Iran war's impact on the economy and monetary policy, questioning any rate cuts this year. The FOMC voted 11-1 to hold the benchmark federal funds rate at 3.5% to 3.75%, marking the second straight meeting with steady rates after three prior 25 basis point cuts.
Economic Projections
The summary of economic projections showed median forecasts for just one 25 basis point cut this year and one in 2027. Projections indicate the federal funds rate at 3.4% by year-end and 3.1% next year, unchanged from December. Policymakers project PCE inflation at 2.7% and core PCE at 2.7% by year-end, up from prior estimates.
In our SEP, FOMC participants wrote down their individual assessments of an appropriate path for the federal funds rate under what each participant judges to be the most likely scenario for the economy.
There are 19 people, and so 19 reasons, 19 individual submissions. If you notice, the median didn't change, but there was actually a meaningful amount of movement toward fewer cuts by people.
Powell's Press Conference Insights
Powell noted forecasts expect some inflation progress mid-year as tariff effects wane, but rate paths depend on economic performance. Officials closely monitor the Iran conflict for inflation risks.
Market Reaction
Markets pulled back rate cut expectations, with CME FedWatch showing 89.2% probability of no change after June, up sharply. Odds favor steady rates through year-end, with only 35.7% chance of one cut by December.
