Federal Reserve Officials Remain in Wait-and-See Mode Amid Uncertainty Over Trump's Tariff Policies
Fed keeps rates steady amid Trump tariff uncertainty. Officials raise inflation outlook, cut growth forecasts, while still projecting two rate cuts in 2025.

Zeynep Kucukkirali
4 Min Read
Mar 20, 2025
Federal Reserve officials opted to remain in a wait-and-see mode amid uncertainties regarding the economic impact of Donald Trump's tariff policies and rising concerns over inflation and growth.
Following a two-day meeting, officials voted late Wednesday to keep the benchmark federal funds rate in the 4.25%-4.5% range. However, they raised their inflation forecasts while lowering their growth projections.

The median Fed official now expects the core inflation measure to be 2.8% in 2025---up from the 2.5% projection in December. Additionally, they sharply lowered their growth estimate from 2.1% to 1.7% and slightly raised their unemployment rate forecast to 4.4%.
On the other hand, the Fed's dot plot of interest rate projections indicated that the median official still expects a half-percentage-point rate cut in 2025, unchanged from the December projection. This aligns with market participants' expectations, implying two quarter-point cuts this year.

However, four officials foresee only one quarter-point cut this year, while another four project no cuts at all. This signals that policymakers remain committed to fighting inflation, even as risks to economic growth increase.
The latest statement no longer includes the phrase suggesting that risks to achieving employment and inflation goals were 'roughly balanced'. Additionally, the January statement's phrase, 'the economic outlook is uncertain,' has been revised to "uncertainty around the economic outlook has increased."
This indicates that officials are aware of the increasing risks and continue to assess them. However, they need more clarity before taking action, Chair Jerome Powell stated during the post-meeting press conference.
Powell acknowledged the uncertainties caused by Trump's policies but reiterated that the Fed is not in a rush to ease further. He also downplayed concerns over slowing growth and fears that tariff policies would accelerate inflation.
Even though recession risks are higher, Powell stated that they are not alarming. He emphasized that the base case scenario assumes the inflationary impact of tariffs will be 'transitory'. This remark reminded markets of the period when the Fed considered pandemic-induced price increases as transitory and reacted slowly, allowing inflation to become sticky.
Nevertheless, Powell argued that slower growth and higher inflation offset each other, meaning the monetary policy outlook remains unchanged.
Nearly all recent surveys have shown that consumer and business concerns about the economy have increased, and sentiment has deteriorated. While Powell acknowledged this as a concern, he emphasized that the Fed focuses on hard data, which remains solid. He also dismissed the recent surge in long-term inflation expectations to their highest level in 30 years as "an outlier."
Ultimately, Powell remained cautious about taking further action on interest rates while maintaining an optimistic stance on the economic outlook. As Duhani Capital Research team, we interpret his remarks as an effort to calm growing market concerns.
However, the Fed remains at risk of facing greater challenges in fulfilling its dual mandate due to the rising two-sided risks. Policymakers now expect slower growth and higher unemployment, yet they still project only a half-point cut this year. This suggests that, despite Powell's argument that inflationary risks from tariffs will be transitory, they are considering the possibility of a more persistent impact.
Looking at markets, investors continue to fully price in two quarter-point cuts, U.S. Treasury yields fell, and the dollar remained relatively flat. Additionally, concerns on Wall Street eased slightly, and U.S. equities saw a modest rebound. However, risk aversion remains dominant, and investors are flocking to safe-haven assets. Notably, gold surged past $3,057, reaching a new all-time high following the Fed decision.
Investors are now shifting their focus to next week's inflation data, which will provide further clues about the state of the U.S. economy.