The Federal Reserve (Fed) has kept interest rates steady at 4.25-4.50% in its latest meeting, anticipating a less favourable economic backdrop of higher inflation and unemployment.
Policymakers slashed 2025 GDP growth forecasts to 1.7% from 2.1%, as 2026 and 2027 were also reviewed down on the back of government spending cuts and tariffs.
This monetary committee meeting can be summarised with one word – uncertainty – according to Jack McIntyre, portfolio manager at Brandywine Global, a Franklin Templeton company.
“That term was peppered throughout both the statement and [Fed chair Jerome] Powell’s press conference. It wasn’t a dovish or hawkish pause but an uncertain pause,” he said.
“The Fed has less conviction but is aligned with the market in its view of where policy rates are headed. It was a humdrum meeting, but it was supposed to be, since monetary policy isn’t what’s impacting the US economy right now. Trump 2.0 reflects different sequencing from Trump 1.0 – with respect to the economy, government policy is in the driver seat.”
In the press conference about inflation expectations, Powell referred to tariff-led inflation as being “transitory,” Daniel Casali, chief investment strategist at Evelyn Partners, noted.
“This suggests that he is willing to look through data such as the Conference Board’s 12-month forward annual CPI inflation expectations of 6% in February, its highest rate for two years. However, Powell’s dismissal of inflation expectations raises the risk that the Fed could be caught out by a potential acceleration in inflation down the road,” he said.
“Looking forward, a weaker US growth outlook, and the fact that the US central bank is still set on cutting interest rates, should put downward pressure on the US dollar. Broadly speaking, a weaker US dollar, when accompanied by global growth, is typically positive for financial markets, as more money could potentially flow into risk assets, like stocks.”