Fed Holds Rates Steady While Powell Eases Concerns

Yields plummet post-FOMC decision. Treasury yields grinded higher throughout the day but reversed course post-Fed, closing the session 3-7 bps below opening levels. The short end of the curve was up 5 bps but fell ~11 bps immediately after the release of the updated Dot Plot, Chair Powell comments, and news that the Fed will soon begin to slow quantitative tightening. The meeting was viewed as generally dovish, which fueled an equity rally. Both the S&P 500 and NASDAQ climbed in the afternoon and closed up 1.08% and 1.41%, respectively.

Fed sees higher inflation and slower growth. The FOMC left the Fed Funds rate unchanged at their first meeting since the escalation of President Trump’s trade war. They also announced a slower pace of securities sales, a measure that featured Fed Governor Christopher Waller as the lone dissenting vote. The Fed’s policy decisions were largely expected by markets and updated economic projections were of greater interest. FOMC members’ median rate forecasts were largely in line with expectations, aside from longer-run expectations, which landed at 3.00% vs. a 3.125% median forecast. The rate forecasts largely confirmed market expectations of 50 bps of cuts in 2025 and indicated that Fed members see 125 bps of cuts over the next two years. The most pronounced takeaways were their inflation and GDP growth expectations; the Fed now sees core inflation at 2.8% over 2025 versus 2.5% in prior projections, and it lowered the 2025 GDP growth forecast from 2.1% to 1.7%.

Powell acknowledges economic uncertainty, tariff threats but says the Fed will remain patient. At today’s press conference, Chair Powell reiterated that the Fed will remain patient with monetary easing, which he attributed to “strong overall” economic conditions. However, officials noted that “uncertainty around the economic outlook has increased” amid President Trump’s new policies and tariffs, and Powell added that recession odds have increased while “recent indications… point to a moderation in consumer spending.”  Meanwhile, the Fed acknowledged new potential inflationary pressures; Powell specified that “I do think with the arrival of the tariff inflation, further progress may be delayed,” though he expected tariff-driven price increases to be “transitory.”

The full FOMC statement with a side-by-side comparison from the last meeting can be read here.