The Fed Expected to Hold Interest Rates, Markets Await Powell’s Statement

The U.S. Federal Reserve (The Fed) is expected to keep its benchmark interest rate unchanged during its monetary policy meeting on Wednesday (March 19, 2025). This decision gives the central bank more time to assess the impact of President Donald Trump’s policies on the U.S. economy, which continues to face inflationary pressures and slowing growth.

The Trump administration’s new tariffs and retaliatory measures from U.S. trading partners have weakened consumer confidence and raised inflation expectations. However, with some tariff policies delayed after their initial announcements, the direction of U.S. trade policy remains uncertain. This ambiguity is likely to make Fed policymakers more cautious, avoiding commitments to a specific course of action.

According to Diane Swonk, Chief Economist at KPMG, there is likely to be significant disagreement on the potential for rate cuts given the current economic uncertainties. The Fed’s interest rate decision, along with updated quarterly economic projections, is scheduled for release at 2:00 PM Washington time on Wednesday, followed by a press conference with Fed Chair Jerome Powell 30 minutes later.

Interest Rate Policy and Stagflation Risks

Swonk predicts that more Fed officials will lean toward maintaining interest rates, given the uncertainty surrounding Trump’s trade policies. The Fed is expected to hold its benchmark rate within the range of 4.25% - 4.5%, though Powell’s statement could shift in response to recent economic slowdown indicators.

Since the last economic projections in December 2024, the U.S. macroeconomic landscape has changed significantly. Rising trade tariff threats, weaker consumer sentiment, and market volatility in recent weeks have led some Fed officials to adopt a more cautious stance regarding rate cuts.

The Fed’s December 2024 projections indicated two rate cuts in 2025. While most economists still predict two reductions, there is ongoing debate over whether only one cut will take place.

Guneet Dhingra, an economist at BNP Paribas, believes the economic outlook outlined in the Fed’s projections points toward stagflation, a scenario where economic growth slows while inflation remains high.

“The Fed is likely to prioritize curbing inflation over responding to economic slowdown, which could surprise the markets,” Dhingra explained.

Financial Markets Await Powell’s Speech

For financial markets, Powell’s press conference will be the key event to watch. Investors seek assurance that the Fed is prepared to act if the economy deteriorates further.

Powell is expected to emphasize that current monetary policy remains flexible enough to handle various economic scenarios without rushing into rate cuts. He may also face questions on whether import tariffs have only a temporary inflationary effect or could contribute to longer-term pressures.

Additionally, Powell is likely to be asked about financial market conditions, particularly after the S&P 500 index declined by 10%. Analysts will also closely watch how the Fed assesses inflation expectations, which have reached their highest levels in over three decades.

While markets are increasingly confident that rate cuts are on the horizon, the Fed appears to be waiting for clearer economic signals before making any major decisions.