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WASHINGTON – The Federal Reserve in a closely watched decision Wednesday held the line on benchmark interest rates though still indicated that reductions are likely later in the year.
Faced with pressing concerns over the impact tariffs will have on a slowing economy, the rate-setting Federal Open Market Committee kept its key borrowing rate targeted in a range between 4.25%-4.5%, where it has been since December. Markets had been pricing in virtually zero chance of a move at this week’s two-day policy meeting.
Along with the decision, officials updated their rate and economic projections for this year and through 2027 and altered the pace at which they are reducing bond holdings.
Despite the uncertain impact of President Donald Trump’s tariffs as well as an ambitious fiscal policy of tax breaks and deregulation, officials said they still see another half percentage point of rate cuts through 2025. The Fed prefers to move in quarter percentage point increments, so that would mean two reductions this year.
Investors took encouragement that further cuts could be ahead, with the Dow Jones Industrial Average rising more than 400 points following the decision. However, in a news conference, Federal Reserve Chair Jerome Powell said the central bank would be comfortable keeping interest rates elevated if conditions warranted it.
“If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer,” he said. “If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly.”
In its post-meeting statement, the FOMC noted an elevated level of ambiguity surrounding the current climate.
“Uncertainty around the economic outlook has increased,” the document stated. “The Committee is attentive to the risks to both sides of its dual mandate.”
The Fed is charged with the twin goals of maintaining full employment and low prices.
At the news conference, Powell noted that there had been a “moderation in consumer spending” and it anticipates that tariffs could put upward pressure on prices. These trends may have contributed to the committee’s more cautious economic outlook.
The group downgraded its collective outlook for economic growth and gave a bump higher to its inflation projection. Officials now see the economy accelerating at just a 1.7% pace this year, down 0.4 percentage point from the last projection in December. On inflation, core prices are expected to grow at a 2.8% annual pace, up 0.3 percentage point from the previous estimate.
According to the “dot plot” of officials’ rate expectations, the view is turning somewhat more hawkish on rates from December. At the previous meeting, just one participant saw no rate changes in 2025, compared with four now.
The grid showed rate expectations unchanged over December for future years, with the equivalent of two cuts expected in 2026 and one more in 2027 before the fed funds rate settles in at a longer-run level around 3%.
In addition to the rate decision, the Fed announced a further scaling back of its “quantitative tightening” program in which it is slowly reducing the bonds it holds on its balance sheet.
The central bank now will allow just $5 billion in maturing proceeds from Treasurys to roll off each month, down from $25 billion. However, it left a $35 billion cap on mortgage-backed securities unchanged, a level it has rarely hit since starting the process.
Fed Governor Christopher Waller was the lone dissenting vote for the Fed’s move. However, the statement noted that Waller favored holding rates steady but wanted to see the QT program go on as before.
“The Fed indirectly cut rates today by taking action to reduce the pace of runoff of its Treasury holdings,” Jamie Cox, managing partner for Harris Financial Group, said. “The Fed has multiple things to consider in the balance of risks, and this move was one of the easiest choices. This paves the way for the Fed to eliminate runoff by summer, and, with any luck, inflation data will be in place where reducing the Federal Funds rate will be the obvious choice.”
The Fed’s actions follow a hectic beginning to Trump’s second term in office. The Republican has rattled financial markets with tariffs implemented thus far on steel, aluminum and an assortment of other goods against U.S. global trading partners.
In addition, the administration is threatening another round of even more aggressive duties following a review that is scheduled for release April 2.
An uncertain air over what is to come has dimmed the confidence of consumers, who in recent surveys have jacked up inflation expectations because of the tariffs. Retail spending increased in February, albeit less than expected though underlying indicators showed that consumers are still weathering the stormy political climate.
Stocks have been fragile since Trump assumed office, with major averages dipping in and out of correction territory as administration officials cautioned about an economic reset away from government-fueled stimulus and toward a more private sector-oriented approach.
Bank of America CEO Brian Moynihan earlier Wednesday countered much of the gloomy talk recently around Wall Street. The head of the second-largest U.S. bank by assets said card data shows spending is continuing at a solid pace, with BofA’s economists expecting the economy to grow around 2% this year.
However, some cracks have been showing in the labor market. Nonfarm payrolls grew at a slower-than-expected pace in February and a broad measure of unemployment that includes discouraged and underemployed workers jumped a half percentage point during the month to its highest level since October 2021.
“Today’s Fed moves echo the kind of uncertainty Wall Street is feeling,” said David Russell, global head of market strategy at TradeStation. “Their expectations are a little stagflationary because GDP estimates came down as inflation inched higher, but none of it is very decisive.”
Microsoft said Wednesday that company veteran Amy Coleman will become its new executive vice president and chief people officer, succeeding Kathleen Hogan, who has held the position for the past decade.
Hogan will remain an executive vice president but move to a newly established Office of Strategy and Transformation, which is an expansion of the office of the CEO. She will join Microsoft’s group of top executives, reporting directly to CEO Satya Nadella.
Coleman is stepping into a major role, given that Microsoft is among the largest employers in the U.S., with 228,000 total employees as of June 2024. She has worked at the company for more than 25 years over two stints, having first joined as a compensation manager in 1996.
Hogan will remain on the senior leadership team.
“Amy has led HR for our corporate functions across the company for the past six years, following various HR roles partnering across engineering, sales, marketing, and business development spanning 25 years,” Nadella wrote in a memo to employees.
“In that time, she has been a trusted advisor to both Kathleen and to me as she orchestrated many cross-company workstreams as we evolved our culture, improved our employee engagement model, established our employee relations team, and drove enterprise crisis response for our people,” he wrote.
Hogan arrived at Microsoft in 2003 after being a development manager at Oracle and a partner at McKinsey. Under Hogan, some of Microsoft’s human resources practices evolved. She has emphasized the importance of employees having a growth mindset instead of a fixed mindset, drawing on concepts from psychologist Carol Dweck.
“We came up with some big symbolic changes to show that we really were serious about driving culture change, from changing the performance-review system to changing our all-hands company meeting, to our monthly Q&A with the employees,” Hogan said in a 2019 interview with Business Insider.
Hogan pushed for managers to evaluate the inclusivity of employees and oversaw changes in the handling of internal sexual harassment cases.
Coleman had been Microsoft’s corporate vice president for human resources and corporate functions for the past four years. In that role, she was responsible for 200 HR workers and led the development of Microsoft’s hybrid work approach, as well as the HR aspect of the company’s Covid response, according to her LinkedIn profile.