The Fed decided to hold rates steady after the Federal Open Market Committee (FOMC) meeting that ended March 19, leaving the target for the federal funds rate at a range of 4.25% to 4.50%.
While investors were widely anticipating a “hold” decision at this month’s meeting, many have been eager to get a closer look at the Fed’s latest thinking in light of the market’s pullback and recent developments in certain economic indicators. In addition to parsing Fed Chair Jerome Powell’s language, investors have been closely scrutinizing the central bank’s newly released updated economic projections for clues to Fed members’ thinking on the economy.
Read on for 4 takeaways for investors after the Fed's meeting.
1. Why didn't the Fed cut rates?
The Fed’s actions are always grounded by developments in unemployment and inflation—due to the Fed’s “dual mandate” of keeping unemployment low while also keeping inflation low and stable. In recent weeks, neither indicator has been tipping the scales in favor of further cuts.
“There are nuances in the data every month, but at a broad level it has been showing a continuation of the same story we’ve been seeing,” says Kana Norimoto, the macro strategist on Fidelity's fixed income research team who covers the Fed. Inflation has remained sticky and is still above the Fed’s 2% target. Although there has been some indication of slight weakening in the labor market, unemployment is still relatively low—at 4.1% as of the most recent reading.1
Some investors may be wondering why the Fed didn’t cut rates in response to the stock market’s pullback, plus recent declines in consumer and business confidence. This is because the Fed’s mandate is generally limited to inflation and unemployment. It does not have a mandate of preventing market corrections or supporting confidence.
“The Fed can respond to market conditions if there are signs of stress that threaten financial stability,” notes Andrew Garvey, the lead monetary policy analyst on Fidelity’s Asset Allocation Research Team. But the recent market pullback thus far looks more like a normal (if unnerving) adjustment in asset prices rather than a severe stress response, he says.
2. Where does the Fed think the economy is going?
The high volume of policy changes from the new administration has made it particularly challenging for the central bank to judge what may come next for the economy.
“The new administration is in the process of implementing significant policy changes in 4 distinct areas: trade, immigration, fiscal policy, and regulation,” Fed Chair Jerome Powell said at a press conference announcing the decision. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.”
It's hard for the Fed to project that "net effect" at this stage, because those various policies may impact the economy in different ways—some inflationary, some disinflationary, some pro-growth, and some weighing on growth. And of course, how US consumers and businesses respond to these changes—in their shopping, saving, investment, and hiring decisions—will also help determine the full impact on the economy.
That said, the Fed’s updated economic projections showed how its members have personally adjusted their outlooks since December, which was the last time it released projections. For example, the median estimate for inflation-adjusted 2025 economic growth among FOMC members has fallen since December, to 1.7%. The median estimate for the unemployment rate at the end of 2025 has risen, to 4.4%. And the median estimate for 2025 inflation has risen.
The Fed has also acknowledged that economic uncertainty has risen in the past few months. The Fed's March economic projections showed increased uncertainty among FOMC members about the trajectory of all 3 of these indicators: growth, unemployment, and inflation.
But Fed Chair Powell has reiterated that the economy has thus far continued to show strength—a view shared by Dirk Hofschire, managing director of research for Fidelity's Asset Allocation Research Team.
"The US economy came into this year on strong footing, with a solid corporate backdrop and a tight labor market. On average, US consumers have relatively strong balance sheets and have been seeing wage growth that is outpacing inflation," Hofschire says. "Although risks to the growth outlook have risen as uncertainty has increased, the economy is coming from a strong starting point, with reasonably low near-term risks of recession."
3. Will there be more interest-rate cuts this year?
The Fed also released a freshly revised dot plot, a key chart that shows how FOMC members believe interest rates may evolve.
The dot plot showed that a median of Fed members expect the fed funds rate to fall to a range of 3.75% to 4.0% by the end of 2025. That estimate would imply 2 more cuts of a quarter of a percentage point at some point over the remaining 6 meetings it will hold in 2025.
That said, those dots represent personal estimates of individual members rather than a commitment from the Fed itself. Given the uncertainty at hand, there may be a high likelihood that expectations could change.
“Economic data is inherently backward-looking, so it may take several months or quarters for policy changes and their second-order effects to shake out in the data,” says Norimoto. “The Fed may be in a holding pattern for now, because so many developments still lie ahead of us.”
4. What should I be doing with my investments right now?
While it can take nerves of steel not to react when markets and the outlook become uncertain, this has often been the best course of action.
Rather than trying to predict where stocks or interest rates may go next, investors could use the current period of uncertainty as a chance to check in on their financial plan. If your mix of investments is off track, consider rebalancing back to a more neutral positioning. But if you understand your capacity to take on risk and are comfortable with your plan, there may be no need to take action.
If you are still concerned, or if you don’t have a plan, consider working with a financial professional to develop one, or to test-drive your plan for whatever may lie ahead.