As had been widely speculated, the Fed on March 19 decided to leave its benchmark interest rate unchanged at 4.50%, its second consecutive meeting of keeping interest rates unchanged. Uncertainty about the U.S. economy and the effect of President Trump’s tariffs policy were likely reasons for the non-action. The central bank kept rates steady in January after reducing them by 1% last year due mostly to signs of cooling inflation. The Fed is still projecting two rate cuts in 2025.
Federal Reserve Chair Jerome Powell explained that it was too early to determine how the tariffs have affected the economy, but the Fed would be watching closely to see what may happen going forward.
“Some near-term measures of inflation expectations have recently moved up,” he said. “We see this in both market and survey-based measures. And survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.
“Looking ahead, the new administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy and deregulation. It is the net effect of these policies that will matter for the economy and for the path of monetary policy.”
Powell sternly refused to answer whether or not President Trump’s firings of federal workers might have any effect on the economy or the Fed’s rate decisions going forward.
A Federal Reserve press release further explained the organization’s thinking.
‘Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated. The Committee seeks to achieve maximum employment and inflation at the rate of 2% over the longer run.
‘Uncertainty around the economic outlook has increased. The Committee is attentive to the risks to both sides of its dual mandate. In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4¼% to 4½%. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.’
Bright MLS Chief Economist Lisa Sturtevant had the following reaction to the Fed’s decision.
“While the outlook for the number of 2025 rate cuts has not changed since December, the economic factors driving the Fed’s decision-making have,” she said. “In December, rate cut projections were tied to expectations around inflation and a soft landing. Now, the Federal Reserve is watching declining consumer confidence and weakening economic conditions, meaning it may be looking at rate cuts to help stave off a potential economic downturn.
“Lower rates are good for homebuyers who have been waiting for mortgage rates to come down. But if rates come down because the labor market is weaker and people are worried about their jobs, those lower mortgage rates won’t be able to bring as many homebuyers into the market. So, it’s not just about when the Fed cuts rates, but rather, what the overall economic picture looks like. Right now, in this challenging environment, the Fed is trying to ‘separate sound from the noise’ to gauge where the economy is headed.”
“Tariffs, massive federal layoffs and immigration policies—it’s hard to look at historical data as a base for future Fed predictions,” commented Melissa Cohn, regional vice president of William Raveis Mortgage. “What happens in the economy in the next three months will be the driver of future rate movement from the Fed.”
Prior to the Fed meeting, CoreLogic Chief Economist Dr. Selma Hepp noted how rate changes impact the housing market.
“While the economic activity in the first quarter economy is still on track to report growth, American households are increasingly concerned with potential re-inflation, their job security and financial outlook, which is holding them back from making major expenditures,” she said. “At the same time, many are still catching up with inflation in housing and related services of the last few years.
“Nevertheless, fears around a significant economic slowdown are helping lower mortgage rates and just in time for the spring home-buying season, but it’s unclear how long the retreat will last. The Federal Reserve is still not expected to make any moves before the summer as they carefully tread between their two mandates—price stability and maximum employment, both of which could be upended once again.”
Realtor.com® Chief Economist Danielle Hale opined that “while some indicators, consumer confidence and retail sales, suggest concerns from consumers that could weigh on economic growth moving forward, most data suggest that the economy remains largely on track even if the risks have risen.
“The Fed’s policy rate remains a whole percentage point lower since its big, initial cut in September. Yet in that time, economic and policy changes have caused views about what’s ahead for the economy to fluctuate widely, and interest rates reflect this uncertainty. The 10-year yield has ranged from roughly 3.8% to 4.8%, while mortgage rates have traversed a nearly similar span from 6.1% to 7%. Fortunately, both the 10-year and mortgage rate seem to have settled at the middle of this range, a welcome break for home shoppers.”
