Fed Holds Rates Flat As Tariffs, Uncertainty Make Their Mark

Federal Reserve officials held the central bank's benchmark interest rate flat on Wednesday, signaling that they plan to wait for the effects of President Donald Trump's early trade moves to filter through the economy before acting.

The target range for the federal funds rate will remain between 4.25% and 4.5%, the same outcome as the Fed's January meeting. The decision by the Federal Open Market Committee was anticipated by investors, who are increasingly looking to make deals despite a cloudy economic outlook.

"There's really high uncertainty," Fed Chair Jerome Powell said during a press conference Wednesday. "We think our policy is in a good place and that we can move when we need to. But right now we think it's appropriate to wait and, given where the economy is right now, we think the price of doing that is very low."

In the commentary released alongside the decision, Fed officials noted that uncertainty around the economic outlook had increased. FOMC members also issued a new economic forecast that reflected a gloomier picture than their December projections.

A majority of board members now see unemployment facing upward pressure—a significant shift from December, when only seven of 19 members anticipated trouble in the job market. Board members also took a more pessimistic view of inflation for the year, with the FOMC's median prediction for core personal consumption expenditures rising 30 basis points since December to 2.5%. Their projections for the target federal funds rate in 2025 remained largely unchanged, with the consensus pointing to a maximum cut of 50 basis points this year.

"The hard data are still in reasonably good shape. It's the soft data, it's the surveys, that are showing significant concerns, downside risks and those kinds of things," Powell said. "We don't dismiss that, we're watching carefully, but we don't want to get ahead of that."

The FOMC also announced that, starting in April, it will slow the pace of its securities sales by reducing the redemption cap from $25B to $5B. The $35B cap for agency debt will stay in place. This shift in securities policy drew the committee's lone dissenting vote, from Christopher Waller, who would have preferred to keep the current redemption cap in place.

The decision to hold rates steady follows three meetings in 2024 in which the Fed cut its benchmark rate by a combined 100 basis points. Today's move is unlikely to change the investment calculus for commercial real estate investors, but the capital markets space has already begun a thaw that is likely to continue, said Holly MacDonald-Korth, CEO of middle-market lender KDM Financial.

"People have been more willing to enter the market," she said. "We're seeing a lot more bridge activity in properties that we think are almost ready to go to stabilized funds. Extend-and-pretend is fading. People who got one extension are probably not going to get a second one, even though the environment is more favorable for borrowers and lenders are more active now."

Trump's unconventional economic proposals have loomed over the Fed since the November election, and Powell reiterated Wednesday that the central bank would respond to current market conditions rather than make decisions driven by projections.

"I'm confident that we're well positioned, in the sense that we're well positioned to move in the direction we'll need to move," Powell said. "I don't know anyone who has a lot of confidence in their forecast."

Powell told reporters that tariffs had begun to show up in inflation data, but he suggested the price increases could prove transitory and said longer-term inflation expectations remained well anchored. Core inflation came in at 2.6% year-over-year in January, down from 2.9% in December but still well above the Fed's 2% target. Trump's tariff regime threatens to drive up prices, especially for the raw materials used in manufacturing and construction that saw massive pandemic-era price hikes.

Consumer confidence has plummeted, and unemployment ticked up to 4.1% in February—a figure that fails to capture many of the 200,000 federal employees who have recently been fired. The Fed is tasked with threading the needle between maximum employment and stable prices in a year when eggs are expected to get 41% more expensive, largely due to an avian flu epidemic, and the federal government—which employed some 3 million people in November—is leading mass layoffs.

"I'm worried about unemployment. The jobs numbers are important to see how the DOGE cuts and things like that wash through the system, how it actually affects businesses and people's jobs," MacDonald-Korth said. "The consumer is the engine of our economy. If we cut consumers' income, what's going to happen and where?"

Treasury Secretary Scott Bessent told Bloomberg last month that he was more focused on the yield for 10-year U.S. Treasury bonds—used to price long-term debt such as commercial real estate loans—than on the Fed's target rate.

The 10-year Treasury yield has been sliding since Trump took office, mainly because the president has injected profound uncertainty into the market with whipsawing tariffs and plans to cut taxes and gut the federal bureaucracy. But that decline follows a rally that began when the Fed made its first rate cut, and most investors expect that rates aren't returning to pre-pandemic levels.

The abrupt shift in economic policy has increased the likelihood of a recession, but it has also made real estate a more attractive asset class thanks to its defensive investment attributes. The major brokerage firms are projecting strong growth in 2025, in part because executives expect sales volume to pick up across most asset classes throughout the year.

"People are getting more comfortable with values. For a couple of years, we didn't have a lot of transactions because we weren't sure what valuations were and people were hesitant to come into the market," MacDonald-Korth said. "That is changing."

UPDATE, MARCH 19, 4:06 P.M. ET: This story has been updated with comments and information from Federal Reserve Chair Jerome Powell's press conference.