Fed extends pause

The Federal Reserve left its benchmark fed funds rate unchanged in a target range of 4.25-4.5%, its second pause since issuing three consecutive rate cuts last year:

While the US economy has slowed in recent months, inflation is still above the Fed’s 2% target level and uncertainty about the direction of US policy, especially tariffs, appears to have put the Fed in “wait-and-see” mode. The Fed also lowered its forecast for 2025 economic growth, while raising its forecasts for inflation and unemployment.

Since the Fed’s last meeting in late January, the Trump administration has announced tariffs on various countries and products, implementing some and postponing or reversing others. In a speech earlier this month, Fed Chairman Jerome Powell said the central bank didn’t need to be in a hurry to adjust interest rates, given the “uncertainty around the [policy] changes and their likely effects remains high.”¹

Although the recent economic cooling hasn’t been dramatic, it has included signs of a less-resilient US consumer. Recent surveys of consumer sentiment and inflation expectations have been less optimistic compared to a few months ago, and retail spending has slowed in 2025.

Morgan Stanley Wealth Management economists recently lowered their estimates for this year’s real GDP to 1-1.5%, and see the potential for the Fed to cut rates two times this year, possibly as early as May—if there is obvious, material evidence of a weakening economy. But they also highlight potential economic tailwinds, including a move toward deregulation.²

Note: The Fed’s next policy meeting is scheduled for May 6-7.

¹ Federal Reserve. Economic Outlook, Chair Jerome H. Powell. 3/7/25.
² Barron’s. This Economist Sees Slowing Growth and Multiple Rate Cuts Ahead. 3/14/25.