US Fed projects slower growth ahead in America, keeps rates unchanged as Trump advocates for rate cuts

The Federal Reserve held its benchmark interest rate unchanged despite worry about the economy’s trajectory as a result of President Trump’s trade war impact. According to some analysts, a US recession may be experienced shortly.

The Federal Reserve kept its key interest rate steady amid uncertainty about the economy’s trajectory due to President Trump’s trade war effects. Since January, the Federal Reserve’s policy committee has maintained a fed funds rate range of 4.25% to 4.5%.

President Trump has been vocal on interest rates to be low in the economy. On March 20, a day after the FOMC meeting, Trump posted – “In a The Fed would be MUCH better off CUTTING RATES as U.S. tariffs start to transition (ease!) their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!”

Fed chief Powell discussed the reasons behind the Fed’s inability to swiftly cut rates after announcing a pause in rates on March 19.

Powell said, “Policy is not on a preset course. As the economy evolves, we will adjust our policy stance in a manner that best promotes our maximum employment and price stability goals.

If the economy remains strong and inflation does not continue to move sustainably toward 2 percent, we can maintain policy restraint for longer. If the labor market were to weaken unexpectedly or inflation was to fall more quickly than anticipated, we can ease policy accordingly. Our current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”

Also, in conjunction with the Federal Open Market Committee (FOMC) meeting held on March 18–19, 2025, meeting participants submitted their projections of the most likely outcomes for real gross domestic product (GDP) growth, the unemployment rate, and inflation for each year from 2025 to 2027 and over the longer run.

Also Read: US economy headed for a major recession in 2025?

Falling GDP Growth Rate Projections

Powell acknowledged that the economy is strong overall and has made significant progress toward their goals over the past two years. Labor market conditions are solid, and inflation has moved closer to our 2 percent longer-run goal, though it remains somewhat elevated.

Economic activity continued to expand at a solid pace in the fourth quarter of last year, with GDP rising at 2.3 percent. Recent indications, however, point to a moderation in consumer spending following the rapid growth seen over the second half of 2024.  Surveys of households and businesses point to heightened uncertainty about the economic outlook.

Summary of Economic Projections showed that the GDP growth rate in the US is dwindling. The median participant projects GDP to rise 1.7 percent this year, somewhat lower than projected in December, and to rise a bit below 2 percent over the next two years.

Trump Effect

Powell is concerned about Trump’s tariff measures, which are escalating a trade war and may negatively harm the US economy. Looking ahead, the new Administration is in the process of implementing significant policy changes in four distinct areas: trade, immigration, fiscal policy, and regulation. It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy. While there have been recent developments in some of these areas, especially trade policy, uncertainty around the changes and their effects on the economic outlook is high.

Inflation

Inflation has eased significantly over the past two years but remains somewhat elevated relative to our 2 percent longer-run goal. Estimates based on the Consumer Price Index and other data indicate that total PCE prices rose 2.5 percent over the 12 months ending in February and that, excluding the volatile food and energy categories, core PCE prices rose 2.8 percent. Some near-term measures of inflation expectations have recently moved up. We see this in both market- and survey-based measures, and survey respondents, both consumers and businesses, are mentioning tariffs as a driving factor.

Job Market

In the labor market, conditions remain solid. Payroll job gains averaged 200 thousand per month over the past three months. The unemployment rate, at 4.1 percent, remains low and has held in a narrow range for the past year. The jobs-to-workers gap has held steady for several months. Wages are growing faster than inflation, and at a more sustainable pace than earlier in
the pandemic recovery. Overall, a wide set of indicators suggests that conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures. The median projection for the unemployment rate in the SEP is 4.4 percent at the end of this year and 4.3 percent over the next two years.

Finally, Powell made it clear that the Committee will assess incoming data, the evolving outlook, and the balance of risks. “We do not need to be in a hurry to adjust our policy stance, and we are well positioned to wait for greater clarity,” said Powell.