The US Federal Open Market Committee (FOMC) holds the Federal Funds Rate steady at 4.25-4.50% at its March 2025 meeting. The Fed announces a reduction in the pace of quantitative tightening (QT) from US$60 billion to US$40 billion.

The FOMC revises its growth projections downwards as economic activity slows. The median projection for Q4 2025 is lowered to 1.7% in the March 2025 projections from 2.1% in the December 2024 projections. The recent weakness in US economic activity data, combined with heightened economic uncertainty, has ignited concerns about a recession.

The FOMC revises its inflation projections upward. Core PCE inflation is projected to be 2.8% in Q4 2025, up from 2.5% in the December policy. Inflation has turned out to be stickier than expected, prompting the FOMC to revise its projections. The FOMC statement also notes that inflation remains “somewhat elevated.”

The FOMC raises its unemployment rate projections for 2025 to 4.4%, up from 4.3% earlier, while projections for 2026 and 2027 remain unchanged. However, the FOMC statement maintains that the unemployment rate has stabilised at a low level, and labour market conditions remain solid.

The Fed announces it is slowing the pace of its balance sheet reduction/quantitative tightening (QT). The monthly cap on Treasury security redemptions is reduced from US$25bn to US$5bn, while the US$35bn cap on agency debt and mortgage-backed securities remains unchanged.

The dot plot projects 50 bps of rate cuts each for 2025 and 2026. However, the policy statement acknowledges that uncertainty around the economic outlook has increased.

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