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Federal Reserve takes a pause, keeps interest rates unchanged

by admin January 30, 2025
January 30, 2025
Federal Reserve takes a pause, keeps interest rates unchanged

The US Federal Reserve kept its key interest rate unchanged on Wednesday, pausing its recent easing cycle as it navigates economic uncertainty and rising political pressure.

This marks the central bank’s first policy decision since President Donald Trump returned to the White House last week, with the administration pushing for immediate rate cuts to support growth.

The Federal Open Market Committee (FOMC) maintained its benchmark borrowing rate at 4.25%-4.5%, following three consecutive rate cuts since September 2024 that totaled a full percentage point.

The decision signals caution from policymakers as they assess inflation trends, labor market strength, and Trump’s aggressive economic policies.

Fed shifts tone on labor market and inflation

In its post-meeting statement, the central bank removed key language from December’s release that indicated inflation had been making progress toward its 2% target.

Instead, the statement noted that inflation remains somewhat elevated, suggesting that policymakers are not yet convinced price pressures are under control.

Additionally, the Fed expressed optimism about the labor market, stating,

“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid.”

A strong labor market, combined with persistent inflation, reduces the urgency for further rate cuts.

While markets expect the Fed to ease monetary policy later this year, officials have emphasized the need to evaluate the impact of previous cuts before making further moves.

Trump’s pressure on the Fed

The decision comes as Trump ramps up political and economic interventions, signing a wave of executive orders on trade, immigration, and deregulation.

The president has openly demanded immediate rate cuts, arguing they are necessary to boost economic growth and lower inflation.

Though the White House has no direct authority over the Fed, Trump’s statements suggest a tense relationship with Chair Jerome Powell, similar to his first term.

Markets are closely watching for any signs of political interference in the central bank’s decision-making process.

Stocks dip as rate cut timeline remains uncertain

Following the Fed’s announcement, Wall Street saw a decline, reflecting investor disappointment over the lack of immediate rate relief.

Traders had already priced in a nearly 100% probability of no change in this meeting but expect the first cut by June 2025.

Current market projections indicate a 61% probability of two quarter-point rate cuts by the end of the year, with interest rates expected to fall to around 3.9% by December, according to CME Group data.

The US economy continued to expand at a steady pace in 2024, with consumer spending holding strong.

The Atlanta Fed projects 2.3% annualized GDP growth for Q4 2024, though this was revised downward from 3.2% due to weakening private investment.

Inflation, however, remains a challenge.

The Fed’s preferred gauge—the core personal consumption expenditures (PCE) index—held at 2.8% in November, while headline inflation rose to 2.4%, the highest since July.

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