Federal Reserve Holds Rate at 4.25–4.50% and Slows Treasury Runoff Amid Tariff Uncertainty

The Federal Open Market Committee voted 11-1 on 19 March 2025 to maintain the federal funds target rate in the range of 4.25% to 4.50%, keeping monetary policy on hold as policymakers weighed the implications of elevated trade policy uncertainty for the US growth and inflation outlook. The lone dissenter was Governor Christopher Waller, who expressed a preference for continuing the current pace of securities holdings reduction rather than modifying the balance-sheet programme as the majority chose to do.

Alongside the rate decision, the Committee announced an adjustment to its quantitative tightening programme, reducing the monthly cap on Treasury securities allowed to roll off without reinvestment from USD 25 billion to USD 5 billion, effective from April 2025. The agency mortgage-backed securities runoff cap was left unchanged. Chair Jerome Powell described it as a technical decision prompted by signs of increased tightness in money markets.

TARIFFS CLOUD THE GROWTH PICTURE

The Committee's statement said that uncertainty around the economic outlook had increased; Chair Jerome Powell pointed to trade policy and tariffs as a significant source of that uncertainty at his press conference. The statement said labour market conditions had remained solid and inflation remained somewhat elevated. The statement indicated that the Committee would continue to monitor data carefully before making further adjustments.

Powell said the Fed would still stop runoff once reserves are somewhat above the level it judges ample, but would now approach that point more slowly. By reducing the Treasury runoff cap by 80%, the Fed will reinvest a larger share of maturing holdings, slowing the contraction of its balance sheet; Powell said the change had no implications for the stance of monetary policy or the ultimate size of the balance sheet.

WALLER DISSENT

Governor Waller's dissent concerned the balance-sheet decision rather than the rate outcome.

The Committee's next scheduled meeting is in May 2025.