The Fed Holds Rates Steady, But is Ready to Act if Needed

1. The Fed Maintains its Policy Rate. At the March Federal Open Market Committee (FOMC) meeting, the Federal Reserve voted to keep rates steady at 4.25-4.50%. It was a down-the-fairway call; growth is slowing but remains above trend and inflation is sticky but progressing. Overall, the press conference was in-line and came with no surprises. We still see the U.S. economy expanding at 2% this year with double-digit earnings growth and somewhat elevated inflation (above the Fed’s 2% goal). Tariffs have been a wildcard which has added to stock market weakness, but we have been buyers of the sell-off. Specifically, Boeing (BA) given its turnaround story, Palo Alto (PANW) as a leader in cybersecurity, Amazon (AMZN), Gap (GAP), and Target (TGT) given consumer resiliency, Quanta Services (PWR), Eaton (ETN), and NextEra Energy (NEE) focused on improving the U.S. power grid, Diamondback Energy (FANG) given recent acquisitions and its operations in the Permian Basin, and D.R. Horton (DHI) as a housing turnaround story. Diversification remains important during downtrends, and we are focused on finding quality names with cheap valuations, ignoring the macro noise when possible.

The FOMC meeting came with an updated Summary of Economic Projections (SEP), which showed that the committee members forecast 50 basis points (bps) worth of interest rate cuts this year. There has been a shift in forecast projections. Nine policymakers see the need for two cuts this year, eight see one or no cuts (compared to four in December), and two see three cuts. Uncertainty around the economic outlook this year increased, with GDP growth projections declining from 2.1% to 1.7%, and inflation expectations rising to 2.7% from 2.5%. Importantly, the committee agreed to slow the pace of decline of its securities holdings (Quantitative Tightening) from $25 billion to $5 billion a month. Security holdings have declined by $2 trillion since they began the balance sheet run-off.

Fed Chair Jerome Powell began the press conference with the Fed’s press release, stating that the committee is attentive to the risks to both sides of its dual mandate, being maximum employment and stable prices. While there has been a moderation in consumer spending, spending levels are normalizing from the rapid growth seen in recent years. Labor market conditions remain solid, and wages are growing faster than inflation, ultimately at a more sustainable pace. The committee said it will be difficult to have a precise assessment as to how much inflation arises from tariffs, but it is clear that some of the recent price increases are due to tariffs. The committee will try to break out non-tariff inflation from tariff-based inflation going forward to have a better picture of underlying economic conditions. Powell noted that there have been increases in short-term inflation expectations which have likely been caused by tariffs, but looking further out, longer-term inflation expectations are well anchored. When asked about consumer confidence surveys, Powell said that the hard data is still solid, and that soft data has shown a rise in uncertainty and downside risk.

Powell reiterated that the policy rate is in a good place to react to what may come and the Fed will wait for more clarity around developing trends in the economy.

Powell, just like everyone else, echoed uncertainty around how tariffs may impact the U.S. economy. Powell noted that the cost of waiting is low given the current stable health of the economy, with no likely recession on the horizon.

Chart 1: The Fed Lowers its Projected GDP Growth in 2025^[1]

Stephanie Link’s TV Schedule:

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^[1] Source: Federal Reserve. As of March 19, 2025.

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