Transitory inflation watch: Fed holds interest rates steady

Federal Reserve Chair Jerome Powell announced interest rate policy would remain unchanged in the range of 4.25%-4.50% at March’s Federal Open Market Committee (FOMC) meeting. Powell’s message implies the FOMC isn’t in a hurry to cut rates given the resilience in the hard data and unknowns of “transitory” inflation potentially triggered by Trump administration tariffs.

FOMC assessment of risks to projections

6/30/2011 to 3/19/2025

Source: Bloomberg

Fed officials now see the economy accelerating at a 1.7% pace this year, down from 2.1% in its December projection. Also, core personal consumption expenditures price index (PCE), the Fed's favored inflation gauge, was revised up for 2025 to 2.8% from 2.5% -- and remains unchanged further out due to tariff unknowns.

18 out of 19 FOMC participants see growth risks skewed to the downside.

17 out of 19 FOMC participants see risks to the unemployment rate skewed to the upside.

18 out of 19 FOMC participants see risks to core PCE skewed to the upside.

Overall, downside growth risks and upside inflation risks mean tension in the Fed’s mandate to promote both maximum employment and stable prices in the US economy.

Source: Bloomberg

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