Fed Holds Rates Steady, Slows Balance Sheet Reduction in 2025

Washington, DC - The Federal Reserve held its target range for the federal funds rate steady at 4-1/4 to 4-1/2 percent at its March 19, 2025, meeting while announcing a significant change to its balance sheet reduction program.

According to the Federal Open Market Committee's (FOMC) statement, the central bank will reduce the monthly redemption cap on Treasury securities from $25 billion to $5 billion beginning in April. 

The monthly redemption cap on agency debt and agency mortgage-backed securities will remain at $35 billion.

The FOMC's economic projections 2025 show a median real GDP growth forecast of 1.7%, down from the December projection of 2.1%. 

The unemployment rate is expected to be 4.4% in 2025, slightly higher than the previous projection of 4.3%.

Inflation projections were revised upward, with the median PCE inflation forecast for 2025 now at 2.7%, compared to 2.5% in December. 

Core PCE inflation is projected at 2.8% for 2025, above the 2.5% projected in December.

The FOMC statement noted that "economic activity has continued to expand at a solid pace" while acknowledging that "uncertainty around the economic outlook has increased." 

The committee reiterated its goal of achieving maximum employment and inflation at 2 percent over the longer run.

The federal funds rate is projected to be 3.9% by the end of 2025, unchanged from December's projection. It will decline to 3.4% in 2026 and 3.1% in 2027.

Most committee members supported maintaining the target range, with Christopher J. Waller casting the sole dissenting vote. 

While Waller supported keeping rates unchanged, he preferred to continue the current pace of balance sheet reduction rather than slow it.