Federal Reserve Holds Rates Steady Amid Inflation Concerns \ Newslooks \ Washington DC \ Mary Sidiqi \ Evening Edition \ The Federal Reserve kept interest rates unchanged, signaling a cautious approach amid strong economic growth and persistent inflation. Fed Chair Jerome Powell dismissed President Trump’s calls for lower rates, emphasizing data-driven decision-making. Analysts predict the next rate cut won’t come until mid-year as the Fed monitors inflation and policy changes.
Federal Reserve Rate Decision: Quick Looks
- The Federal Reserve left interest rates unchanged after three consecutive cuts last year.
- Chair Jerome Powell emphasized a patient approach, citing a solid job market and persistent inflation.
- President Trump criticized the Fed’s decision, advocating for aggressive economic measures.
- The Fed is closely monitoring inflation, policy changes, and global economic trends before considering further cuts.
Deep Look: Fed Holds Interest Rates Steady Amid Inflation and Economic Strength
The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, signaling a cautious approach after three consecutive rate cuts last year. The decision underscores the central bank’s effort to assess inflation trends and economic policies under President Donald Trump before making further adjustments.
While the job market remains robust, with unemployment stabilizing at low levels, inflation remains a concern for policymakers. The Fed acknowledged that inflation is “somewhat elevated,” a factor that could limit the likelihood of additional rate cuts in the coming months.
Powell Dismisses Trump’s Push for Lower Rates
At a press conference following the decision, Fed Chair Jerome Powell largely avoided responding to President Trump’s calls for lower interest rates. Trump had previously stated that he would take measures to lower oil prices and then “demand” rate cuts. He also indicated he would discuss the matter directly with Powell.
“I’m not going to have any response or comment on whatever the president said,” Powell stated. When asked whether Trump had directly communicated his preference for lower rates, Powell confirmed that there had been “no contact.”
Powell reiterated that the economy is performing well, citing a 4.1% unemployment rate and annual GDP growth exceeding 3% in the fall. Given these conditions, he emphasized that the Fed sees no urgency in adjusting its monetary policy.
“With the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said.
Uncertainty Over Trump’s Economic Policies
Fed policymakers are also closely watching the potential economic effects of President Trump’s proposed policies, including tariffs, tax cuts, deregulation, and immigration changes. Powell noted that the central bank cannot preemptively react to these policies without a clearer picture of their implementation and impact.
“We don’t know what will happen,” he said. “We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”
The uncertainty surrounding these policies has led many analysts to predict that the Fed will hold off on rate cuts for several more months. Kathy Bostjancic, chief economist at Nationwide Financial, suggested that the central bank is likely to remain in a wait-and-see mode until at least mid-year.
“We are all in wait-and-see mode, including the Fed,” she said.
Inflation Trends and Future Rate Cuts
Last year, the Fed reduced its benchmark interest rate from 5.3% to 4.3%, citing concerns over a slowing job market. Hiring had weakened over the summer, prompting a significant half-point rate cut in September. However, job growth rebounded in subsequent months, and unemployment declined slightly.
Inflation remains one of the Fed’s biggest considerations. The central bank’s preferred inflation gauge measured 2.4% in November, just above its 2% target. However, core inflation, which excludes volatile food and energy prices, rose by 2.8% over the past year, indicating persistent inflationary pressures.
Powell emphasized that the Fed requires “real progress on inflation or some weakness in the labor market” before it considers further rate cuts.
The Fed traditionally raises interest rates to curb inflation by making borrowing more expensive, which slows economic activity. However, cutting rates too soon could reignite inflationary pressures, making it a delicate balancing act for policymakers.
In December, Fed officials projected only two additional rate cuts for 2025. Analysts at Goldman Sachs predict that these cuts will likely occur in June and December, rather than in the early months of the year.
Trump’s Criticism and Broader Economic Implications
Following the Fed’s decision, President Trump took to Truth Social to criticize the central bank’s handling of inflation. He claimed he could bring down inflation by ramping up domestic energy production, reducing regulations, adjusting trade agreements, and revitalizing American manufacturing.
Trump has consistently pressured the Fed to lower rates, arguing that high borrowing costs are restricting economic growth. However, Powell and other Fed officials have maintained that their decisions are guided by economic data rather than political pressure.
Fed’s Exit from Climate-Focused Financial Group
During the press conference, Powell also addressed the Fed’s recent departure from the Network for Greening the Financial System (NGFS), an international group focused on integrating climate risks into financial regulation. The Fed had joined the group in 2020 but withdrew earlier this month.
Powell explained that while the group initially focused on climate-related financial risks, its expanded priorities—such as biodiversity—extended beyond the Fed’s mandate.
“I think that the activities of the NGFS are not a good fit for the Fed, given our current mandate,” Powell said.
Global Central Banks Taking Divergent Paths
While the Fed has opted to keep interest rates steady, many central banks around the world are shifting toward rate cuts. The European Central Bank (ECB) is widely expected to lower borrowing costs at its upcoming meeting, and the Bank of Canada announced a rate cut on Wednesday. The Bank of England is also projected to follow suit next month.
However, Japan’s central bank is moving in the opposite direction. After decades of low inflation and slow growth, the Bank of Japan is raising interest rates as inflation begins to take hold.
Impact on Borrowing Costs and Financial Markets
A potential Fed rate cut in March remains on the table, but financial markets currently estimate the odds of such a move at less than 20%. As a result, borrowing costs remain high across the economy, making it difficult for consumers and businesses to access affordable credit.
Mortgage rates, in particular, continue to pose challenges for homebuyers. The average rate on a 30-year fixed mortgage fell slightly to just under 7% last week after five consecutive weeks of increases. The cost of borrowing remains high despite the Fed’s previous rate reductions, reflecting market expectations that inflation will persist.
Investors have also pushed the 10-year Treasury yield above 4.80%, its highest level since 2023. This suggests that financial markets believe strong economic growth and stubborn inflation will prevent the Fed from cutting rates aggressively.
Powell acknowledged that high borrowing costs are making homeownership more difficult for many Americans and warned that these challenges are likely to persist.
Market Reaction to Fed Decision
Despite the significance of the Fed’s announcement, the stock and bond markets reacted with little volatility. Investors had widely anticipated that the central bank would hold rates steady, leading to muted movements in major financial indices.
As the Fed continues to assess economic conditions, future rate decisions will depend on incoming data on inflation, employment, and global economic trends. For now, Powell and his colleagues are maintaining a cautious stance, ensuring they do not act prematurely in either direction.
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