Fed Keeps Benchmark Interest Rate Steady, Signaling Concerns About Slower Economic Growth and Persistent Inflationary Pressures

Amid the announcement, the cryptocurrency market has shown renewed optimism as prices of major cryptocurrencies surged.

The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, but signaled concerns over slower economic growth and sticky inflation pressures.

The central bank is holding its benchmark fed funds rate range at 4.25%-4.50%, Slashdot reports. It is also planning to slow the pace of its balance sheet runoff starting in April, adds Benzinga.

The institution is reducing its balance sheet by $60 billion per quarter, but that pace will be slowed in the coming months.

The report comes amid a broad market rally that has seen major cryptocurrencies like Bitcoin and Ethereum rise. At the time of press, Bitcoin was up 4% in 24 hours at $84K. Ethereum has also gained 8%, trading at $2,034. Meanwhile, XRP is leading the surge after soaring 10% to $2.47 in the same period.

Those interested in the Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents can find them here.

What Happened

The institution is slashing its growth expectations, Benzinga notes. Economists at the Federal Reserve now see U.S. GDP growing just 1.7% in 2025, down from the 2.1% forecast in December.

Growth estimates for 2026 and 2027 were also trimmed, signaling a cautious outlook from policymakers. “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty around the economic outlook has increased, FOMC statement read. “The Committee is attentive to the risks to both sides of its dual mandate.”

Additionally, the institution also announced plans to slow the pace of its balance sheet runoff starting in April, adding another layer of complexity to its monetary policy approach.

The Fed’s latest economic projections now see U.S. GDP growing just 1.7% in 2025, lower than the 2.1% forecast in December. The projections for 2026 and 2027 were also revised downward to 1.6% and 1.5%, respectively, from 2.0% and 1.8% previously.

These projections reflect the broader uncertainty surrounding the U.S. economic recovery. Despite strong employment gains and a rapidly declining unemployment rate, recent macroeconomic data has shown signs of slower growth and persistent inflation.

What’s Next

Despite the economic headwinds, the Fed’s projections suggest policymakers still anticipate ending 2025 with a benchmark interest rate of 3.9%, implying only two rate cuts by year-end. The forecasts for 2026 and 2027 stand at 3.4% and 3.1%, respectively, reinforcing expectations that borrowing costs will remain elevated in the near term.

In December, the central bank forecast inflation at 2.5% for 2025 and GDP growth at 2.1%. Given recent economic data, there is speculation that the Fed may raise its inflation outlook while lowering its growth expectations.

The FOMC meeting will be pivotal in shaping investor sentiment. For crypto traders, the short-term volatility might be significant, but in the broader context of digital asset markets, it’s business as usual.