The Federal Reserve Sees Uncertainty Spiking

Today’s Fed statement was somewhat underwhelming. Of course, we didn’t expect the central bank to change its policy rate. There was good reason to believe the Fed would stay on the sidelines, just like it did at its January meeting. This was reflected in both the futures market and the consensus forecast. But the press release didn’t say much about the disruptions currently affecting the US economy. It did mention heightened uncertainty, but left out other noteworthy shifts. Over the past several weeks, indicators have suggested that economic growth in the United States started slowing in the first quarter. Consumer confidence is fading and inflation expectations are clearly rising.

We can at least see some of these changing conditions reflected in the Fed’s projections, which revised expected real GDP growth downward from 2.1% to 1.7% for end‑2025, and from 2.0% to 1.8% for end‑2026. At the same time, projected inflation was revised upward, with the year-over-year change in the Personal Consumption Expenditures deflator going from 2.5% to 2.7% for end‑2025.

In addition, during the press conference, Jerome Powell spoke of “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. It remains to be seen how these developments affect future spending and investment.”

At this point, the Fed seems highly unwilling to change its current monetary policy—the decision to slow the pace of its balance-sheet runoff should not be viewed as a component of monetary policy. During the press conference, Powell reiterated that the Fed was in no hurry to adjust its policy and “was well-positioned to wait for greater clarity.” Moreover, the Fed dot plot has not changed from December 2024. Fed policymakers still see two 25‑basis-point cuts in 2025 and in 2026.

That said, the situation could change completely, largely because of the Trump administration’s policies. As Powell said, the net effects of changes to trade, fiscal and immigration policy are what matters for the economy and the monetary policy trajectory.