The U.S. Federal Reserve opted to keep interest rates unchanged on Wednesday amid concerns over a potential recession.
“If the economy remains strong, and inflation does not continue to move sustainably toward 2%, we can maintain policy restraint for longer,” Fed Chair Jerome Powell stated on Wednesday.
Since December, the Fed’s Open Market Committee has held its borrowing rate within the range of 4.25%-4.5%. Officials also indicated that another half percentage point cut could be implemented throughout the year.
“If the labor market were to weaken unexpectedly, or inflation were to fall more quickly than anticipated, we can ease policy accordingly,” Powell added.
Former President Donald Trump has been vocal in his criticism of the Federal Reserve, calling for rate cuts.
According to the CME Group’s Fed Watch tool, which tracks target interest rate probabilities among traders, there was a 99% probability that interest rates would remain unchanged on Wednesday.
Stocks saw modest gains in the morning, with the S&P 500 climbing 39 points, or 0.7%, to 5,653. The Dow Jones Industrial Average increased by 0.5%, while the Nasdaq Composite rose by 1%.
By the market’s close at 4 p.m.—approximately two hours after the Fed’s announcement—prices had moved significantly higher.
The DJIA gained 383.32 points, or 0.92%, closing at 41,964.63. The S&P 500 rose by 1.08% to end at 5,675.29, while the Nasdaq Composite climbed 1.41% to settle at 17,750.79.
The record highs remain DJIA at 45,014.04 on Dec. 4, Nasdaq at 20,173.89 on Dec. 16, and S&P 500 at 6,117.76 on Feb. 19.
A 10% decline is classified as a “correction.”
Meanwhile, gold prices surged $18.20 to a record $3,059.70.
The Federal Reserve had previously opted not to adjust rates at its Jan. 29 meeting. The Fed has cut rates three times since September 2024, including a half-point reduction at that time, amounting to a full percentage point decrease.
The Federal Reserve continues to aim for a 2% inflation target, significantly lower than the 40-year peak of 9.1% reached in mid-2022. At that time, the Federal Reserve’s rate stood at 1.2%.
For the 12 months ending in February, the inflation rate was 2.8%, a slight decrease from January’s 3.0%.
“The most important thing to recognize is that the information that came across was almost exactly what people had expected,” Michael Green, chief strategist at Simplify Asset Management, told.
“We’ve now had two consecutive summers in which the inflation has been much weaker than expected, and two consecutive winter and spring periods in which inflation has been higher. That suggests that there is residual seasonality that is not being properly captured.”
Donald Trump
Meanwhile, the Trump administration’s tariffs on key allies, including Mexico, Canada, the European Union, and China, triggered retaliatory tariffs from the EU and Canada on U.S. steel and aluminum, disrupting the American economy.
China also responded with higher tariffs on U.S. goods, adding to rising consumer prices in the U.S.
“It can be the case that it’s appropriate sometimes to look through inflation if it’s going to go away quickly without action by us—if it’s transitory,” the Fed chair explained.
“And that can be the case in the case of tariff inflation. I think that would depend on the tariff inflation moving through fairly quickly.”
Stock markets suffered a sharp decline last week due to tariffs, with the DJIA experiencing its worst one-week drop since March 2023.
“I think it may be one or zero cuts this year, particularly if the tariffs stick. I don’t think they’re going to try and bail out the economy by cutting rates, because they know that if they stoke inflation, they’re going to have to go back and start all over again,” said Allianz Trade North America senior economist Dan Smith.
On Feb. 11, Powell testified before Congress, stating that the Fed was in “no hurry” to adjust interest rates.
He emphasized that the economy remained strong and, with interest rate policy already “significantly less restrictive,” there was no urgent need for adjustments.
However, on March 10, the stock market plummeted just one day after former President Donald Trump suggested in an interview that the U.S. could face a recession.
Adding to recession concerns, Treasury Secretary Scott Bessent stated on March 10 that he could not guarantee the U.S. would avoid entering a recession.
In October 2024, twenty-three Nobel prize-winning economists had warned of such risks in a letter predicting that Trump’s economic policies would be inflationary.
The economists argued that policies promoted by Vice President Kamala Harris would result in stronger economic performance.
Trump’s policies, they wrote, “including high tariffs even on goods from our friends and allies and regressive tax cuts for corporations and individuals, will lead to higher prices, larger deficits, and greater inequality.”
