In contrast, growth projections for 2025 were revised downward to 1.7% from 2.1%. The unemployment rate is also expected to tick up slightly, reaching 4.4% by year-end compared to the previous estimate of 4.3%.

Powell acknowledged that while inflation has started to rise, a key factor appears to be the implementation of new tariffs. “Inflation has started to move up,” Powell said, “we think partly in response to tariffs. And there may be a delay in further progress over the course of this year.”

Bloomberg noted that eight officials indicated they foresee only one or no rate reductions this year, denoting a degree of caution in the central bank’s approach.

Financial markets reacted positively to the Fed’s decision, with the S&P 500 rising and Treasury yields moving lower following Powell’s remarks.

In addition to holding rates steady, the Fed announced a slowdown in its balance sheet reduction efforts. Starting in April, the central bank will lower the monthly cap on the amount of Treasuries maturing without reinvestment to $5 billion, down from $25 billion. The cap for mortgage-backed securities will remain unchanged at $35 billion.