Federal Reserve System (FED) FOMC Meeting summary

Economic outlook and recent developments

• Economic activity is expanding at a solid pace, supported by resilient consumer spending and continued business investment, though job gains remain low and unemployment is stabilizing at 4.4%.

• Inflation remains somewhat elevated, above the 2% target, with core PCE inflation at 3.0% over the past year, mainly driven by goods sector tariffs.

• Labor market conditions are stabilizing after a period of softening, with slower job growth due to reduced labor force growth from lower immigration and participation, alongside softer labor demand.

• Disinflation continues in the services sector, and near-term inflation expectations have declined, while longer-term expectations remain anchored.

• The Committee is focused on achieving maximum employment and 2% inflation over the long run, closely monitoring risks to both objectives.

Monetary policy stance and decisions

• The policy rate remains unchanged at 3.5%-3.75% after three consecutive 25 basis point cuts, totaling 75 basis points since September.

• Interest rate paid on reserve balances is 3.65 percent, with standing overnight repo operations at 3.75 percent and reverse repo at 3.5 percent with a $160 billion per-counterparty limit.

• Treasury bill purchases and reinvestments will continue to maintain ample reserves.

• Most committee members supported holding rates steady, with some dissent favoring a cut; no preset test for future cuts was articulated.

• Decisions on future rate adjustments will be made meeting by meeting, guided by incoming data and evolving risks.

Inflation drivers and outlook

• Most of the recent inflation overshoot is attributed to tariffs on goods, expected to be a one-time price increase rather than persistent inflation.

• Core PCE inflation is just above 2% when excluding tariff effects, and ongoing disinflation is observed in services.

• The effects of tariffs are expected to peak and then subside by mid-year, potentially allowing for policy loosening if labor market risks re-emerge.

• Inflation expectations, both short- and long-term, remain consistent with the 2% target, reflecting confidence in a return to target.