U.S. Federal Reserve sees tariffs raising inflation this year, keeps key rate unchanged

Federal Reserve keeps rates steady, plans to cut twice, despite inflation; economy growth slows, uncertainty looms.

The Federal Reserve kept its benchmark interest rate unchanged Wednesday (March 19, 2025) and signaled that it still expects to cut rates twice this year even as it sees inflation staying stubbornly elevated.

The Fed also now expects the economy to grow more slowly this year and next than it did three months ago, according to a set of quarterly economic projections also released Wednesday (March 19.

It forecasts growth falling to just 1.7% in 2025, down from 2.8% last year, and 1.8% in 2026. Policymakers also expect inflation will pick up slightly, to 2.7% by the end of this year from its current level of 2.5%. Both are above the central bank’s 2% target.

Even though the Fed maintained its forecast for two cuts, economists noted that under the surface there were signs that the central bank could stay on hold for some time. That is likely to keep borrowing costs for mortgages, auto loans, and credit cards unchanged in the coming months.

Eight of the 19 Fed officials said they see only one or zero rate reductions this year, up from just four in December.

“It will be harder for them to cut rates this year with inflation moving sideways,” said Michael Gapen, an economist at Morgan Stanley.

Fed Chair Jerome Powell, at a news conference, said that President Donald Trump's tariffs have started to push up inflation and would likely stall the progress the central bank has seen in reducing inflation since its peak in 2022.