Fed Holds Rates Amid Recession Fears, Trump Policies

The Federal Reserve has decided to keep interest rates unchanged, maintaining the federal funds rate between 4.25% and 4.50% for the second consecutive meeting. This decision comes amidst growing concerns about a potential recession, fueled by the economic policies of the Trump administration.

The central bank's decision to hold rates steady was widely anticipated by market participants. The CME Group’s FedWatch Tool indicated a 99% probability of the Fed maintaining its current target interest rates, reflecting near-unanimous market confidence in that outcome.

In its Federal Open Market Committee (FOMC) statement, the Fed acknowledged a resilient labor market but expressed concerns about persistent inflation and global economic challenges. The central bank indicated that it would closely monitor inflation and labor market data before making any adjustments to its policy.

Fed Chairman Jerome Powell had previously echoed this cautious approach, noting that the economy remains strong and does not yet warrant changes in interest rates. Powell's upcoming press conference is expected to provide clarity on the conditions that might prompt future rate moves and how the Fed views the mounting economic risks.

This meeting was the first since the implementation of Trump's trade policies targeting various countries. The Fed had already identified these tariffs as a source of uncertainty at its January meeting, where rates were also held steady. Economists have warned that these tariffs could reverse recent progress on inflation by driving up consumer prices and inviting retaliation, potentially straining the economy.

Recent US inflation data supports a cooling trend, with the consumer price index rising 0.2% in February, lowering the annual rate to 2.8% from 3%. The core CPI also increased by 0.2%. However, concerns about tariffs and their potential impact on the economy persist.

In an interview, Trump did not rule out the possibility of a recession. Treasury Secretary Scott Bessent added to these concerns on March 10, stating that he could not guarantee the US would avoid a recession. Powell's upcoming remarks are expected to address these tensions, including tariffs, inflation, and recession risks.