FOMC Minutes: Fed Maintains Rates, Slows Balance Sheet Reduction Amid Rising Uncertainty

The Federal Reserve released minutes from its March 18-19, 2025 meeting, revealing that officials maintained the federal funds rate at 4.25-4.50% while deciding to slow the pace of balance sheet reduction starting in April.

Key highlights:

• Policy Stance: The Committee voted to maintain the target range for the federal funds rate at 4.25-4.50%, with one dissenting vote from Governor Waller who opposed slowing the balance sheet reduction.
• Balance Sheet Decision: Starting in April, the Fed will reduce the monthly redemption cap on Treasury securities from $25 billion to $5 billion while maintaining the $35 billion cap on agency debt and mortgage-backed securities.
• Economic Assessment: The minutes noted that "economic activity has continued to expand at a solid pace" with unemployment stabilized at a low level and "labor market conditions remaining solid." However, inflation "remains somewhat elevated."
• Increased Uncertainty: Participants observed "elevated uncertainty" facing the economy, with deteriorating household and business sentiment amid concerns about government policy changes, particularly regarding tariffs.
• Inflation Risks: Most participants viewed inflation risks as "tilted to the upside," with tariffs expected to boost inflation this year, though the magnitude and persistence of such effects remain uncertain.
• Economic Risks: Almost all participants saw risks to employment and economic growth as "tilted to the downside," with many noting that federal funding cuts had begun affecting employment at contractors, universities, hospitals, and nonprofits.
• Trade Policy Concerns: Several officials noted that announced or planned tariff increases were larger and broader than many business contacts had expected, with some contacts already reporting cost increases.
• Consumer Spending: Data suggested consumer spending growth might be moderating from its rapid pace of the previous two quarters, with deteriorating consumer sentiment.

The Committee emphasized it was "attentive to the risks to both sides of its dual mandate" and would "carefully assess incoming data, the evolving outlook, and the balance of risks" in considering future policy actions.

EURUSD has retraced its gains after Trump announced a 90 day delay for tariffs. Source: xStation