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Informist, Wednesday, Mar. 19, 2025

NEW DELHI – The US Federal Open Market Committee kept the Fed funds target range unchanged at 4.25-4.50% for the second straight meeting. In addition, the FOMC voted 11-1 to reduce the pace of its security sales from the Federal Reserve's balance sheet starting April. US Fed officials continued to guide for only 50 basis points of rate cuts in 2025.

"Beginning in April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion," the FOMC statement said. "The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion."

The Fed has been trimming its balance sheet by $60 billion every month in Treasury and mortgage-backed securities since Jun. 1, after $95 billion of monthly sales the prior two years. While agreeing with the committee's decision on interest rates, US Fed Governor Christopher Waller voted against the resolution as he disagreed with the reduction in security sales, the FOMC said.

The panel had lowered the benchmark rate by a total 100 bps in the last three meetings of 2024. The committee's decision was in line with market expectations. At 2315 IST Wednesday, the CME FedWatch tool showed that Fed fund futures reflected a near 100% probability of the FOMC leaving rates unchanged. At 0020 IST, the yield on the 10-year US Treasury yield was 4.30%, little changed from before the announcement of the rate decision.

Two months after Republican Donald Trump was sworn in as the US president on Jan. 20, the committee said, "uncertainty around the economic outlook has increased." The statement also dropped prior commentary on its employment and inflation goals being roughly in balance. Trump has imposed tariffs on key trading partners in March, fulfilling campaign promises, with more tariffs scheduled in April. He had publicly called for interest rate cuts before he took office, but the FOMC has not cut rates in either of the two meetings since his inauguration.

Even with recent job cuts among federal employees, the FOMC retained its commentary on employment and inflation. Its preferred inflation gauge eased to 2.6% on year in January, above its long-term goal of 2.0%, and the unemployment rate fell marginally to 4% that same month. The committee said it was attentive to risks on both sides of its dual mandate.

"Recent indicators suggest that economic activity has continued to expand at a solid pace," the FOMC statement said. "The unemployment rate has stabilised at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated."

In the Summary of Economic Projections released along with the rate decision, four of the 19 Fed officials guided for interest rates to be steady by the end of the year, rising from only one in December. Fed fund futures are pricing in 75 bps of rate cuts in 2025, according to the CME FedWatch tool. Only two officials agreed with that assessment, down from three at the previous outlook.

The median view was retained at the Fed funds rate declining to 3.75-4.00% by December end, with nine officials of the same view. Four members assessed that only a single 25-bps rate cut would be required by the end of the year.

The pace of disinflation in the world's largest economy has slowed since the latter half of 2024, with January core personal consumption expenditure inflation of 2.6% the same as July's. The Fed's preferred inflation gauge is expected to be at 2.8% in Oct-Dec, 30 bps higher than prior projections, and to remain above 2% even by the end of 2026.

Meanwhile, the median GDP growth was revised sharply downwards to 1.7% annual growth on year in Oct-Dec, from 2.1% at the last meeting. Estimates for the following years were also revised slightly downward. In the labour market, the unemployment rate median projection has been revised 10 bps higher to 4.4% by December, and is seen settling at 4.3% at the end of the next two calendar years.  End

Reported by Aaryan Khanna

Edited by Ashish Shirke

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