- Fed officials project two rate cuts in 2025, keeping the federal funds target range at 4.25%-4.50%.
- Economic growth is expected to slow to 1.7% in 2025, with unemployment rising slightly to 4.4%.
- Inflation shows signs of moderation, with core PCE projected at 2.8% for 2025.
Fed Holds Steady on Rate Cut Outlook
San Francisco Fed President Mary Daly reiterated that two interest rate cuts in 2025 remain a "reasonable" baseline projection, despite recent economic volatility. The stance aligns with the Federal Open Market Committee's March 2025 median forecast, which maintains the federal funds rate target range at 4.25%-4.50%.
"We're seeing progress on inflation, but the path remains uncertain," Daly said in recent remarks, emphasizing the Fed's data-dependent approach. The central bank continues to balance risks to its dual mandate of maximum employment and price stability, even as political and policy uncertainties—including potential tariff hikes—introduce fresh challenges.
Economic Slowdown Ahead
Revised projections indicate GDP growth will decelerate to 1.7% in 2025, down from earlier estimates, while the unemployment rate is expected to tick up to 4.4%. Core PCE inflation, a key metric for the Fed, is forecast at 2.8%—still above the 2% target but showing signs of gradual cooling.
Market participants have largely priced in the Fed's outlook, though some analysts caution that external shocks could derail the timeline. The central bank has already begun slowing its balance sheet reduction, signaling a cautious shift in monetary policy tools.
"The Fed is threading a needle," said one fixed-income strategist, speaking on condition of anonymity. "They want to ease policy restraint without reigniting inflation or spooking the labor market."
Attempts to reach other Fed officials for additional comment were unsuccessful. The next FOMC meeting is expected to provide further clarity on the timing and pace of potential cuts.