The United States: Acknowledging Uncertainty While Maintaining Monetary Policy Stance
2025-03-24
■ The FOMC keeps the policy rate unchanged and decides to slow the pace of the Fed's balance sheet reduction starting in April.
■ The Fed maintains that long-term inflation expectations are under control and remains cautious about market expectations of early rate cuts.
At the Federal Open Market Committee (FOMC) meeting held on March 18-19, the policy rate was unchanged from the January meeting, remaining at 4.25-4.50%. Regarding the reduction of the Federal Reserve's (Fed) balance sheet, it was previously noted in the minutes of the January FOMC meeting that this would be discussed. In this meeting, the Fed decided to reduce the upper limit for the reduction of U.S. Treasury bond maturities from $25 billion per month to $5 billion starting in April. However, the Fed emphasized that this change does not represent a shift in monetary policy and will not affect the medium-term size of its assets. The meeting statement acknowledged an increase in uncertainty regarding the economic outlook but maintained that the Fed's assessment of the current economy and inflation remains unchanged. The Fed believes the economy continues to expand steadily, the labor market remains strong, and inflation remains elevated. Additionally, the guidance on future policy rate adjustments remained consistent with the January meeting. The Fed will continue to monitor new economic information and adjust its policy stance if necessary to meet its goals.
The updated Summary of Economic Projections (SEP), which reflects the median expectations of participants, shows that the policy rate forecast has remained unchanged from December of the previous year, and the long-term forecast continues to hold at 3.000% following four consecutive rate hikes. As for economic and inflation forecasts, the real GDP growth rate for 2025 and beyond has been lowered, while the unemployment rate for 2025 and the inflation rate (PCE deflator) for 2025-2026 have been revised upward. While the Fed still expects the economy to achieve a soft landing, its forecast suggests that economic growth may slow due to the impact of U.S. government tariff policies, and short-term price pressures could remain. At a press conference, Fed Chairman Powell acknowledged that while data from consumer surveys show an increase in short-term inflation expectations, long-term indicators remain consistent with the Fed’s inflation target, and the Fed continues to believe that long-term inflation expectations are under control. He also reiterated his position from January that the Fed is in a favorable position to take time to assess changes in inflation expectations.
At this FOMC meeting, although the Fed acknowledged that factors such as aggressive tariff policies have heightened economic uncertainty and adjusted its economic and inflation forecasts accordingly, it maintained its original policy stance. The Fed will not adjust the policy rate until the economic and price outlook becomes clearer. While cautious about the potential for inflation to accelerate again, the Fed believes there is no need to adjust monetary policy unless the labor market deteriorates rapidly. Additionally, despite recent signs of deteriorating economic data and the uncertainty surrounding U.S. tariff policies, which have led to increased market expectations for early rate cuts, the Fed has not acknowledged these expectations and will remain on the sidelines in the short term.
■ The Fed maintains that long-term inflation expectations are under control and remains cautious about market expectations of early rate cuts.
At the Federal Open Market Committee (FOMC) meeting held on March 18-19, the policy rate was unchanged from the January meeting, remaining at 4.25-4.50%. Regarding the reduction of the Federal Reserve's (Fed) balance sheet, it was previously noted in the minutes of the January FOMC meeting that this would be discussed. In this meeting, the Fed decided to reduce the upper limit for the reduction of U.S. Treasury bond maturities from $25 billion per month to $5 billion starting in April. However, the Fed emphasized that this change does not represent a shift in monetary policy and will not affect the medium-term size of its assets. The meeting statement acknowledged an increase in uncertainty regarding the economic outlook but maintained that the Fed's assessment of the current economy and inflation remains unchanged. The Fed believes the economy continues to expand steadily, the labor market remains strong, and inflation remains elevated. Additionally, the guidance on future policy rate adjustments remained consistent with the January meeting. The Fed will continue to monitor new economic information and adjust its policy stance if necessary to meet its goals.
The updated Summary of Economic Projections (SEP), which reflects the median expectations of participants, shows that the policy rate forecast has remained unchanged from December of the previous year, and the long-term forecast continues to hold at 3.000% following four consecutive rate hikes. As for economic and inflation forecasts, the real GDP growth rate for 2025 and beyond has been lowered, while the unemployment rate for 2025 and the inflation rate (PCE deflator) for 2025-2026 have been revised upward. While the Fed still expects the economy to achieve a soft landing, its forecast suggests that economic growth may slow due to the impact of U.S. government tariff policies, and short-term price pressures could remain. At a press conference, Fed Chairman Powell acknowledged that while data from consumer surveys show an increase in short-term inflation expectations, long-term indicators remain consistent with the Fed’s inflation target, and the Fed continues to believe that long-term inflation expectations are under control. He also reiterated his position from January that the Fed is in a favorable position to take time to assess changes in inflation expectations.
At this FOMC meeting, although the Fed acknowledged that factors such as aggressive tariff policies have heightened economic uncertainty and adjusted its economic and inflation forecasts accordingly, it maintained its original policy stance. The Fed will not adjust the policy rate until the economic and price outlook becomes clearer. While cautious about the potential for inflation to accelerate again, the Fed believes there is no need to adjust monetary policy unless the labor market deteriorates rapidly. Additionally, despite recent signs of deteriorating economic data and the uncertainty surrounding U.S. tariff policies, which have led to increased market expectations for early rate cuts, the Fed has not acknowledged these expectations and will remain on the sidelines in the short term.