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Fed keeps rates unchanged as widely expected

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Central bank to taper drawdown of its balance sheet

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Powell signals tariff impact tough to determine

(Updates with Fed Chair Powell's comments)

By Chuck Mikolajczak

NEW YORK, March 19 (Reuters) -

U.S. stocks rallied on Wednesday after the Federal Reserve

kept rates unchanged as widely expected, and the central bank

and investors continue to gauge how President Donald Trump's

tariff policies affect the economy and inflation.

The central bank kept its benchmark overnight interest

rate unchanged in the 4.25%-4.50% range, and indicated that two

quarter-point interest-rate cuts were likely later this year,

the same median forecast as three months ago. The Fed also

forecast slower economic growth and higher inflation.

Policymakers disagreed about the path forward, pointing

to uncertainty among members about how to handle the effects of

Trump's plans.

The Fed also said it

would reduce

the pace of the drawdown of its still-massive balance

sheet, as it faces challenges in assessing market liquidity

during an ongoing impasse in the U.S. Congress over lifting the

government's borrowing limit.

"Given growing worries around tariffs and how they could

affect U.S. growth and inflation," Matthias Scheiber, head of

the multi-asset solutions team at Allspring Global Investments

in London, said the Fed "took a widely expected 'wait and see'

approach on rates."

Scheiber added: "For 2025, the interest rate market

currently expects the Fed will cut rates to around 3.75% by

year-end. A lot will depend on how the inflation-versus-growth

trade-off develops-growth may continue weakening, and the Fed

may need to cut rates more forcefully than expected."

Traders still see the Fed lowering borrowing costs by at

least two 25-basis point cuts by December, with a 62.2% chance

for a cut of at least 25 basis points in June, according to data

compiled by LSEG.

According to preliminary data, the S&P 500

gained 60.62 points, or 1.08%, to end at 5,675.44 points,

while the Nasdaq Composite gained 247.57 points, or

1.41%, to 17,751.11. The Dow Jones Industrial Average

rose 386.61 points, or 0.93%, to 41,967.92.

Stocks extended gains further as Fed Chair Jerome

Powell spoke

, saying it was too early to determine whether to look

through the impact U.S. tariffs would have on inflation, and

difficult to assess how much of any price increases are

attributable to the levies.

"The market was primarily looking for anything that

reduced the uncertainty, and I think simply that Powell was kind

of maintaining the outlook there," said Russell Price, chief

economist at Ameriprise Financial in Troy, Michigan.

"Inflation expectations went up just a little bit, and

their GDP numbers came down just a little bit, so the market's

taking it as the Fed did not add to the overall uncertainty

background that is currently pressuring stocks."

The European Union will tighten steel import quotas to

reduce inflows by a further 15% from April, a senior EU official

said, in a move aimed at preventing cheap steel from flooding

the European market after Washington imposed new tariffs.

Boeing ( BA ) shares jumped after the aircraft maker said it

does not see a near-term impact from tariffs.

Analysts have said markets are largely eyeing Trump's

announcements regarding reciprocal trade barriers on April 2.

Each of 11 S&P 500 sectors rose, led by a 1.3% gain in

consumer discretionary stocks.

U.S. stocks have come under selling pressure in recent weeks

after a string of economic indicators signaled the economy and

consumer sentiment may be cooling as trade policy concerns grow.

Still, equities have shown signs of bottoming by registering

gains in three of the past four sessions.

Multiple companies have also lowered their profit outlooks,

the latest being General Mills ( GIS ). The Pillsbury owner

lowered its annual sales outlook, sending its shares lower.

The benchmark S&P 500 index confirmed last week it

was in correction following a 10% drop from its recent high. The

tech-heavy Nasdaq also confirmed a correction on March

6, while the blue-chip Dow is roughly more than 3% away from the

correction threshold.