Fed Keeps Rates Unchanged, But Significantly Revises Inflation And Growth Expectations: Retail’s Optimistic

The Federal Reserve on Wednesday maintained a status quo policy keeping its key borrowing rate targeted in a range between 4.25%-4.5%, aligning with market expectations.

At the same time, the Federal Open Market Committee (FOMC) said it will continue reducing its holdings of Treasury securities and agency debt and agency mortgage‑backed securities.

“Beginning April, the Committee will slow the pace of decline of its securities holdings by reducing the monthly redemption cap on Treasury securities from $25 billion to $5 billion. The Committee will maintain the monthly redemption cap on agency debt and agency mortgage-backed securities at $35 billion,” it said.

The FOMC said in its statement that uncertainty around the economic outlook has increased.

The Fed’s Christopher J. Waller was the lone dissenter who supported no change for the federal funds target range but preferred to continue the current pace of decline in securities holdings.

Following the Federal Reserve’s decision, benchmark indices continued to trade in the green.

According to the dot plot rate projections, 11 of the 19 policymakers expect the central bank to cut rates by 50 basis points in 2025, which would translate into two quarter-point rate reductions this year. Previously, 15 officials had factored in at least two rate cuts.

The Fed has also made some revisions to its inflation and growth expectations. The central bank expects core PCE inflation to hit 2.8% in 2025 compared to a December projection of 2.5%. At the same time, the Fed has lowered its growth estimate to 1.7% from the 2.1% estimated in December.

Neil Dutta at Renaissance Macro told Bloomberg that overall, it’s a dovish reaction function.

“The Fed sees tariffs as bad for growth, unemployment and inflation. Yet, despite the 0.3ppt upward revision in the core inflation forecast, the median dot was unchanged, still showing two cuts. If core inflation comes in softer than that bogey, there is room to pull cuts from 2026 into 2025,” Dutta said.

Following the policy announcement, the SPDR S&P 500 ETF Trust (SPY) traded 0.67% higher, while the Invesco QQQ Trust, Series 1 (QQQ) was up 0.94%.

Retail sentiment surrounding these ETFs climbed higher into the ‘bullish’ territory on Wednesday.

SPY’s Sentiment Meter and Message Volume as of 2:30 p.m. ET on March 19, 2025 | Source: Stocktwits QQQ’s Sentiment Meter and Message Volume as of 2:30 p.m. ET on March 19, 2025 | Source: Stocktwits

Retail users on Stocktwits appeared optimistic following the Fed’s policy announcement.

Investors will be watching how Donald Trump’s tariff policies pan out in the coming weeks and months, as they are expected to have a significant impact on inflation and the trajectory of rate cuts.

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