A Federal Reserve meeting on interest rates has evolved into two meetings.
One is the meeting where the central bank makes its decision. The second is the post-meeting news conference during which Chairman Jerome Powell explains to reporters and, more important, markets worldwide what it all means.
On Wednesday the practical effect came during the news conference, which started at about 2:30 p.m. U.S. Eastern Time. Until then, the Standard & Poor’s 500 Index was largely range-bound after Tuesday’s loss.
Then the index surged to 5,675, up 1.1% on the day and 154 points higher than the close on March 13.
Here are eight takeaways from what Powell said and how markets moved as they did.
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The Fed left its key interest rate alone
The Federal Funds Rate, what the central bank wants banks to charge each other for overnight loans, remains at 4.25% to 4.5%. This was entirely expected.
Why the Fed left the rate alone. The rate is the foundation rate for most U.S. interest rates. Powell said the rate was left alone because there’s a lot of economic uncertainty just now. The Fed wants to see how all the economic forces interact before making a big move.
A second more esoteric piece of the Fed decision: It trimmed its reduction of its big inventory of Treasury securities from $25 billion a month to $5 billion. This was to moderate the Fed’s impact on bond markets. It might help shore up bond prices.
Fed sees two more rate cuts ahead in 2025
That’s what the Federal Reserve’s Summary of Economic Projections, known as the Dot Plots say. The Dot Plots are a series of guesses from Fed officials as to what will happen to the economy. They’re no more rigorous than that. The Fed sees two more rate cuts this year, in the spring and fall, which would peg the Federal Funds Rate at 3.75% to 4% at year-end.
How did markets react to the Fed decision?
Stocks soared because investors were delighted to know the Fed wasn’t in a panic mode about tariffs, specifically. Better to let the Trump administration’s policies play out and deal with the ramifications later, Powell said. The major averages were all higher.
A notable winner on the day: Tesla (TSLA) enjoyed its best day in some time, rising 4.7% to $235.86 and up 7.2% from its March 10 intraday low of $220. The stock of the electric-vehicle maker, led by presidential adviser Elon Musk, is still down 41.6% this year.
The Consumer Discretionary sector, which includes Tesla, was the top S&P 500 sector on the day.
The economy is still in a good place, the Fed says
Reasonable people can disagree, but this basically has been Powell’s mantra since the end of 2024. Unemployment is at historically low levels, about 4%. Interest rates have settled into a range. The 10-year Treasury yield finished at 4.29%, down slightly from Wednesday and down from 4.793% on Jan. 3.
Consumer-sentiment surveys showing deep unease and changing spending habits are, in the long run, less reliable than actual data, Powell said. Once things settle out, he says, the economy’s strength will rule the day.
He did say the economic stresses will prove “transitory.” Powell critics noted he used that term when inflation soared in 2022.
Mortgage rates slide. Mortgages fell to around 6.75%, high for some buyers but lower than the January peak of 7.1% or higher.
The slide came as housing starts moved up in February from January, probably because horrible January weather eased. Building permits, however, fell 1.25%. A clearer picture on the housing market comes Thursday when the National Association of Realtors releases its February sales report.
Two unwanted economic outcomes
The Dot Plot projections assume economic growth slows and inflation ticks up slightly over the next year. The changes were made mostly because of assumptions about how tariffs will affect the economy, Powell said.
GDP growth. In December the projections assumed the economy would grow 2.1%. Now, the projections are for 1.7% growth.
PCE inflation. This inflation number is derived from the monthly personal income report and measures price changes for what people actually buy. This is the Fed’s preferred inflation measure. In December, the projections were for 2.8% core inflation (excepting food and energy, which are volatile factors). The projection is now 3%.
More Economic Analysis:
- Retail sales add new complication to Fed rate cut forecasts
- CPI inflation surprise resets tariff talk
- Does Friday’s big rally mean the worst is over?
Uncertainty is still alive and well, the Fed says
The Fed even acknowledges it. The second paragraph of the Fed’s rate statement says: “Uncertainty around the economic outlook has increased.”
The government payroll cuts continue and more lawsuits against them are being filed. Many government policies seem to be made on the fly, including tariff decisions, and then are rescinded.
In fact, Powell conceded, “I don’t know any forecaster who has a lot of confidence in their forecast.”
Watch out for April 2: Reciprocal Tariffs Day
This is among the biggest sources of uncertainty. That’s the date President Donald Trump has set to announce reciprocal tariffs against countries the administration believes are hurting American businesses.
So far, the administration has announced tariffs affecting some $800 billion of goods from China, Mexico and Canada.
The Washington Post reported Wednesday that the administration is thinking of tariffs in the trillions of dollars.
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