The Federal Reserve is set to keep interest rates unchanged on Wednesday, with fresh economic projections from policymakers expected to reveal whether they still anticipate rate cuts by year-end. These decisions come as officials assess the economic impact of the Trump administration’s first two months in office.
A new policy statement and updated projections will be released at 2 p.m. EDT (1800 GMT) following the Fed’s two-day meeting, which has centered on shifts in the economic outlook since President Donald Trump’s inauguration on January 20. Fed Chair Jerome Powell will hold a press conference 30 minutes later to provide further insights.
Since retaking office, Trump has introduced tariffs on Chinese imports and primary metals, with broader trade taxes on U.S. partners potentially taking effect next month. His administration has also imposed immigration restrictions and initiated federal employee layoffs, which could escalate into the tens of thousands.
Following the election and leading up to the Fed’s January 28-29 meeting, policymakers expressed growing uncertainty about how the new administration’s policies might impact an economy they otherwise deemed strong, with steady growth and cooling inflation.
The Fed cut its benchmark rate by a full percentage point last year in response to slowing inflation, expecting a gradual return to a neutral interest rate—one that neither stimulates nor restrains economic activity. However, initial market reactions to the administration’s trade and fiscal policies, including declines in stocks and bonds, waning business confidence, and government job losses, have added new layers of complexity. The upcoming projections will offer more clarity on whether Fed officials anticipate slower growth and rising inflation—or a more tempered outcome.
A recent Reuters poll found that most economists believe recession risks have increased. Business and consumer confidence surveys have weakened, and even administration officials acknowledge potential short-term economic costs.
“Trump is engineering a ‘trade shock’ that will push the economy onto a lower growth path,” said Steven Blitz, chief U.S. economist at TS Lombard. “Monetary policy has limited options to counteract a tariff-driven trade shock beyond addressing rising unemployment or inflation—both of which could emerge.”
KEY POLICY DEBATES
So far, key economic indicators closely monitored by the Fed, such as inflation and unemployment, have shown little direct impact from Trump’s policy moves. The unemployment rate inched up to 4.1% in February, with 151,000 jobs added. Inflation remains above the Fed’s 2% target, and the upcoming February reading is expected to show a slight increase. However, policymakers have maintained their outlook for inflation to decline over the course of the year.
The Fed’s latest projections will include year-end estimates from all 19 policymakers on economic growth, unemployment, inflation, and the benchmark interest rate. Investors closely watch the median forecasts, which provide insight into the central bank’s consensus outlook.
Markets had anticipated that the Fed would approve two quarter-point rate cuts before the end of the year, bringing the overnight interest rate down to the 3.75%-4.00% range. While this expectation aligns with the Fed’s December outlook, evolving economic conditions have introduced new uncertainties.
The full extent of Trump’s policy agenda remains unclear. A significant portion of the proposed tariffs, particularly those targeting Mexico, Canada, and the global auto industry, is still being finalized. Additionally, unresolved debates over the federal debt ceiling, potential extensions of Trump’s first-term tax cuts, and ongoing legal challenges add further complexity.
While the Fed refrains from directly commenting on fiscal or trade policy, its focus remains on inflation and employment—the core elements of monetary policy. Powell underscored this point in his January 29 press conference, stating that the Fed does not “criticize or praise” administration policies.
However, Wednesday’s projections may reveal shifts in policymakers’ risk assessments since December. Some officials have already signaled concern, with growing references to difficult choices ahead if Trump’s tariffs drive up consumer prices while economic growth slows and unemployment rises.
“The Fed is likely more worried about administration policy than it is willing to admit,” said Steve Englander, head of macro research for North America at Standard Chartered.
As markets brace for the Fed’s latest outlook, advisors and investors must remain attentive to any signals about future rate cuts and broader economic risks. Uncertainty remains high, making a well-diversified, risk-aware approach essential for navigating the months ahead.
