MNI: FOMC Sticks To Two '25 Cuts, Slows QT Pace
MNI (WASHINGTON) - Federal Reserve officials said Wednesday they expect to cut interest rates twice this year, the same as December, as inflation looks more persistent than thought and heightened uncertainty around tariff policies raises worries about an economic slowdown.
The central bank also decided to slow the pace at which it is reducing Treasuries holdings in its balance sheet to a cap of USD5 billion per month from USD25 billion previously. Fed Governor Chris Waller dissented against that portion of the decision, preferring to maintain the current pace of asset runoffs. Agency mortgage securities will continue to run off at a maximum of USD35 billion a month.
The Fed's "dot plot" for 2025 moved in a hawkish direction: four policymakers saw no rate change at all this year, four saw just one cut, while nine expected two cuts -- the median. Two officials penciled in three rate reductions.
The FOMC kept interest rates on hold at 4.25-4.5% as expected and indicated the lack of clarity around policies out of Washington made it too difficult to assess the balance of risks to the economy.
"Uncertainty around the economic outlook has increased," the Fed said. "The Committee is attentive to risks to both sides of its dual mandate."
The Fed also removed a sentence from its January statement stating the committee saw "risks to achieving its employment and inflation goals" as "roughly in balance."
The Summary of Economic Projections showed a downward revision in 2025 GDP, to 1.7% from 2.1%. Inflation moved in the other direction -- policymakers now see core PCE ending the year at 2.8%, up from 2.5% in the December projections.
The central bank is meeting against the backdrop of heightened uncertainty in Washington as President Donald Trump implements an aggressive trade and immigration agenda promised during the campaign.
Fed Chair Jerome Powell will face questions from reporters in his post-meeting press conference, likely focused on whether he's more worried about stubborn inflation or the risk of an economic downturn.
"The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid," the FOMC statement said. "Inflation remains somewhat elevated."