Federal Reserve makes rate cut decision as concerns grow about economy

• The Federal Reserve left its key interest rate unchanged after meeting in March. The deciding committee said uncertainty in economic outlook is growing.
• President Donald Trump and his administration are not ruling out the possibility of a recession as tariffs take hold. The president called it a “period of transition,” while his Commerce Secretary said any negative economic consequences would be “worth it.”
• Fed officials now project higher inflation, higher unemployment and lower economic growth for 2025 than they previously projected in December.

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The Federal Reserve opted not to cut its interest rate on Wednesday, March 19. The decision to extend the rate cut pause was widely expected, though cracks are starting to surface in the economy. 

The Fed’s decision leaves its benchmark interest rate between 4.25% and 4.5%, where it has been since the Fed’s last move to cut in December.

In its statement, the Federal Open Market Committee acknowledged uncertainty in economic outlook is growing.

Why did the Fed start cutting rates, and why did it stop?

As inflation fell in 2024, the Federal Reserve cut rates at three separate meetings for a total of one percentage point. After reaching a recent consumer price inflation low of 2.4% in September 2024, inflation began rising every month after through January, reaching 3%.

With inflation rising along with a stabilizing labor market, the Federal Reserve opted to rein in rate cut expectations as they target 2% inflation. 

In February 2025, President Donald Trump’s first full month in office, consumer price inflation slowed to 2.8%. However, the Federal Reserve has previously cited uncertainty in trade and immigration policies as a reason to hold rates steady.

What are leaders saying about a recession?

While U.S. Commerce Secretary Howard Lutnick insisted the U.S. would not enter a recession on March 9, two days later, he said if the Trump administration’s policies on tariffs lead to a short-term recession, it’s “worth it.”

“These policies are the most important thing America has ever had, so it is worth it,” Lutnick told CBS on March 11. “The only reason there could possibly be a recession is because of the Biden nonsense that we had to live with.”

Trump neglected to rule out the chance of a recession when asked multiple times about the possibility in March. 

“I hate to predict things like that,” Trump said to Fox News’ Maria Bartiromo in response to a question about whether there would be a recession. “There is a period of transition because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. It takes a little time.”

How have the Federal Reserve’s economic projections changed?

The Federal Open Market Committee releases economic projections every three months. In Wednesday’s release, the Fed now expects lower economic growth, higher inflation and higher unemployment in 2025 than what they projected in December. 

• Real gross domestic product projections changed from 2.1% to 1.7%. 
• Unemployment rate projection changed from 4.3% to 4.4%.
• Core PCE inflation (Fed’s preferred gauge) projection changed from 2.5% to 2.8%.

Meanwhile, in the latest running estimate by the Federal Reserve Bank of Atlanta’s GDP tracker, the economy is headed for a 1.8% contraction in the first quarter of 2025. That’s a significant swing from the end of January when it was pacing for 2.9% growth.