Fed Holds Steady, But Uncertainty Clouds the Outlook

The Federal Reserve is set to announce its latest monetary policy decision on Wednesday, and all eyes will be on the central bank's outlook amid growing economic uncertainty.

The Fed is widely expected to hold interest rates steady at the conclusion of its two-day policy meeting. However, investors will be closely parsing the Fed's updated economic projections and any commentary from Chair Jerome Powell for clues about the path forward.

The key focus will be on the Fed's updated "dot plot" - the chart showing each policymaker's individual forecast for the federal funds rate. In December, the dot plot pointed to two rate cuts later this year, down from four previously, as officials began factoring in the potential impact of President Trump's economic policies.

Now that those policies, including a slate of tariffs, are being implemented, the question is whether the Fed will further tweak its rate outlook. Goldman Sachs projects the central bank will boost its 2025 inflation forecast to 2.8% from 2.5%, while dialing back its growth outlook to 1.8% from 2.1%.

"The theme out of the meeting is going to be uncertainty, and Fed Chair Powell is probably going to say that over and over," said Wil Stith, bond portfolio manager for Wilmington Trust.

Indeed, uncertainty around the economic outlook has been a growing concern for investors. A recent Bank of America survey showed 71% of fund managers expect a period of "stagflation" - where growth stalls even as inflation persists. Consumer sentiment has also declined as high prices remain a top worry.

"We're in more of a growth scare over the course of the year than we are an inflation scare," said Luke Tilley, chief economist for Wilmington Trust. He expects the Fed to keep its two-rate cut projection this week, but then lower rates four times starting in May as the impact of tariffs weighs on the economy.

The Fed's policy decision is due out at 2 p.m. ET on Wednesday, followed by Powell's press conference at 2:30 p.m. ET. Investors will be listening closely for any new signals about the central bank's outlook and how it plans to navigate the uncertain economic terrain ahead.