As global markets navigate uncertainty and trade disputes continue to dominate headlines, the U.S. Federal Reserve is expected to stay on course when it concludes its two-day policy meeting on Wednesday. With the federal funds target range likely to remain at 4.25%-4.50%, attention will turn to the Fed’s messaging and policymakers’ economic projections for the coming months.

A Steady Hand on Interest Rates

The consensus among analysts and economists is that the Fed will maintain its current policy stance, keeping rates unchanged while providing insight into the path forward. However, there remains an outside possibility that the central bank could offer hints about the timeline for ending its quantitative tightening (QT) program.

Market watchers predict that the Fed will lower its reinvestment cap in Q2 2025, with a full halt to balance sheet reduction anticipated by Q4 2025. This aligns with the Fed’s cautious approach to managing economic growth and inflation risks.

Michael Feroli, chief U.S. economist at JP Morgan, believes the Fed’s post-meeting statement will reflect signs of slowing economic growth but is unlikely to address trade-related risks directly. “We expect the statement to continue to note that growth and inflation risks are ‘roughly in balance’ and that policymakers are considering the ‘extent and timing of additional adjustments’ to the funds rate,” he noted.

Revised Economic Projections: A Tough Balancing Act

Alongside the rate decision, the Federal Reserve will release its updated Summary of Economic Projections (SEP), which is expected to reflect a slowing economy alongside persistent inflation pressures.

Many economists predict the Fed will revise down its growth forecast while increasing its estimates for inflation and unemployment. Feroli pointed out that the Fed’s previous growth projection of 2.1% for 2024 now appears optimistic. “With weaker Q1 data and heightened trade tensions, we expect the Fed to lower its growth projection. Additionally, the core PCE inflation forecast may rise by around 0.2 percentage points.”

The Federal Open Market Committee (FOMC) faces a significant challenge in balancing rising inflation against a cooling labor market. According to Marc Giannoni, chief U.S. economist at Barclays, policymakers’ individual rate projections—the so-called ‘dot plot’—are expected to reflect a more cautious approach to rate cuts. “We anticipate the median projection will indicate just one 25-basis-point cut in 2024, bringing the target rate to 4.1%, compared to two cuts forecasted in December. In 2026, with inflation approaching the Fed’s 2% target and unemployment stabilizing, we expect two additional cuts, bringing the rate to 3.6%.”

Feroli echoed this sentiment, emphasizing that while recent economic data may warrant adjustments, the Fed is unlikely to deviate significantly from its prior guidance. “Governor Christopher Waller has suggested two to three cuts this year, but other Fed officials have not signaled a major shift in their stance,” he said.

Powell’s Press Conference: Staying Above the Fray

One of the most closely watched events of the day will be Fed Chair Jerome Powell’s press conference, scheduled for 18:30 GMT (14:30 EST). Powell has been commended for his ability to navigate politically sensitive topics without controversy, a trend that analysts expect will continue.

“Since President Trump returned to office, Powell has done well to stay out of the political crossfire,” Feroli observed. “We suspect he will continue this strategy—avoiding strong commentary on trade, immigration, or fiscal policy. While markets have been increasingly pricing in a May rate cut, Powell is likely to stress that the Fed remains patient and data-dependent.”

Market Implications and Outlook

As traders and investors digest the Fed’s latest outlook, volatility is expected in bond and equity markets. While some had hoped for clearer guidance on future rate cuts, the Fed appears poised to take a cautious, measured approach to monetary policy.

With inflation still elevated and economic growth moderating, the central bank must walk a fine line between easing financial conditions and maintaining credibility in its fight against inflation. As always, markets will be watching Powell’s every word for clues on what comes next.