With interest rates on hold, Fed's economic projections take center stage

Howard Schneider

Wed, Mar 19, 2025, 3:07 AM 4 min read

By Howard Schneider

WASHINGTON (Reuters) - The Federal Reserve is expected to hold interest rates steady on Wednesday, with new economic projections out from policymakers that will show if they still see rates moving lower by the end of the year as they sort through the implications of the first two months of the Trump administration.

A new policy statement and the projections will be released at 2 p.m. EDT (1800 GMT) at the end of a two-day meeting focused on how the economic outlook has shifted since President Donald Trump's January 20 inauguration. Fed Chair Jerome Powell is scheduled to hold a press conference a half hour later.

Since returning to the White House, Trump has unveiled tariffs on imports from China and on primary metals and has threatened broader taxes on imports from U.S. trading partners next month; imposed restrictions on immigration; and initiated layoffs of federal employees that may mount into the tens of thousands.

After the election and through the Fed's January 28-29 meeting, policymakers spoke of mounting uncertainty about how the new administration's plans might influence an economy they felt was otherwise strong and poised for continued growth with slowing inflation.

The Fed cut its benchmark rate by a full percentage point last year as inflation slowed, with policymakers anticipating they were on a steady march towards a neutral interest rate, the level that neither stimulates nor restricts economic activity.

With initial repercussions from the administration's actions felt in stock and bond markets, falling confidence, and a drop in government employment, the coming projections may provide more details on whether Fed officials expect slower growth and higher inflation as a result, or a more benign outcome.

A recent Reuters poll showed economists were nearly unanimous in feeling that recession risks have risen. Surveys of business and consumer confidence have weakened, and administration officials have acknowledged their actions could be costly, at least in the short run.

"Trump is engineering a 'trade shock' that will drop the economy to a lower growth path," said Steven Blitz, chief U.S. economist at TS Lombard. "There is little monetary policy can do to offset a trade shock through tariffs ... except to counter rising unemployment and/or inflation, and the economy could end up with both."

FRAMING OF DEBATE

The headline data most watched by the Fed on inflation and unemployment so far has yet to register much of an impact from Trump's plans. The jobless rate edged up to 4.1% in February and the economy added 151,000 jobs; inflation remains above the Fed's 2% target with a coming read for February expected to show a slight increase, but policymakers so far have continued to bank on a drop this year.