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Below the Views on FED Policy by Dr. Manoranjan Sharma, Chief Economist, Infomerics Ratings Ltd

While the Fed has multiple things to consider in its risk matrix, the Fed is charged with the twin goals of maintaining full employment and low prices. In the wake of heightened global uncertainty and increased business complexities stemming from President Donald Trump’s significant policy changes, the Fed held the rates steady. This was fully anticipated because “uncertainty around the economic outlook has increased”. But “the Committee is attentive to the risks to both sides of its dual mandate.”

In this disconcerting overarching environment, some analysts fear the dreaded specter of stagflation, which could be the worst of both worlds. The US Fed held the rates steady for a second straight meeting because of decelerating growth and persistently sticky inflation. Accordingly, the Federal Open Market Committee (FOMC) voted on March 19, 2025, to keep the benchmark federal funds rate in a range of 4.25%-4.5%.

The Fed announced a further scaling back of its “quantitative tightening” program in which it is slowly reducing the bonds it holds on its balance sheet.

Governor Christopher Waller, who supported steady rates, dissented from the balance sheet decision. Chair Jerome Powell acknowledged that tariff impacts are not amenable to prescient forecasts. Hence, there was a need for greater clarity on the impact of those policies on the economy before acting.

The Fed forecasted two rate cuts for this year and expected the core personal consumption expenditures price index, the Fed’s preferred inflation forecast, to rise to 2.8% in 2025, up from a prior forecast of 2.5%. It also expected GDP at 1.7% this year, down from the earlier forecast of 2.1%.

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