The Fed on Wednesday maintained the federal funds rate at about 4.5% and signaled it expects slower economic growth, slightly higher inflation, but the same half-point cut in its federal funds rate later this year.
The Fed Open Market Committee decided to stick with its 4.25% to 4.50% target range for the federal funds rate as its mood has soured since last fall.
“The FOMC held the federal funds rate steady but downgraded its outlook for economic growth this year and acknowledged greater downside risk to that outlook than in December,” Curt Long, chief economist for America’s Credit Unions, said.
“Should the economy weaken, credit unions will be a critical partner for the members and local communities they serve,” Long said.
A projections report issued after the meeting showed half of committee members expect slower economic growth and higher inflation this year.
Half of committee members said they expect GDP to grow 1.7% this year, down from their median expectation of 2.1% growth in December. They also downshifted their growth expectations for 2026 and 2027.
The median expectation for its preferred measure of inflation also grew. Inflation measured by personal consumption expenditures (PCE) excluding food and energy is expected to grow 2.8% this year, up from December’s expectation of 2.5% growth.
Its expectation for the federal funds rate remains as it was in December: That it will be 3.9% by the end of this year and 3.4% by the end of 2026.
“The Committee’s median member continues to expect two rate cuts in 2025 despite a higher forecast for inflation, which suggests a willingness to look through a modest rise in price growth as being a one-off effect of tariffs,” Long said.
Mike Fratantoni, chief economist for the Mortgage Bankers Association, said the FOMC “is holding steady amidst substantial uncertainty regarding the outlook” for the economy.
Fratantoni said the most significant policy change from the Fed’s two-day meeting was to markedly slow the pace of quantitative tightening (QT) beginning in April, dropping the pace of Treasury runoff from $25 billion to $5 billion per month. The MBS cap of $35 billion per month remains the same.
“A slower pace of QT will prevent further liquidity strains in financial markets,” Fratantoni said. “In the near term, we expect mortgage rates to remain in a fairly narrow range, between 6.5 and 7%, which should support the spring housing market.”
The FOMC next meets May 6-7.
Contact Jim DuPlessis at [email protected].
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Jim DuPlessis
Jim covers economic data trends emerging for credit unions, as well as branch news and dividends.
