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The Federal Reserve kept its main interest in the check on Wednesday, causing a recent trend of relaxing of the policy, because it is investigating which will probably be a bumpy political and economic landscape.
In a generally expected relocation, the Federal Open Markt Committee of the Central Bank left its overnight rate unchanged in a range between 4.25%-4.5%.
The decision followed a full percentage point at three straight cuts since September 2024 and marked the first FED meeting because frequently fed critic Donald Trump last week took the presidency and almost immediately announced his intentions that he wants the central bank to rates lower.
The statement after the meeting dropped a few instructions about the reasoning behind the decision to keep the rates stable. It offered a slightly optimistic view of the labor market and lost an important reference from the December statement that inflation “has made progress in the direction of” the inflation goal of 2% of the FED.
“The unemployment rate has stabilized at a low level in recent months and the labor market conditions remain solid,” said the new language. “Inflation remains somewhat raised.”
A stronger labor market and stubborn inflation would stimulate the FED less to alleviate policy. The statement again indicated that the economy “continued to expand at a solid pace.”
During a press conference, Chairman Jerome Powell added that the labor market was not an important source of inflatoid pressure. He said that the central bank should “see real progress on inflation or any weakness on the labor market before we consider making adjustments.”
Stocks fell after the decision to leave the rates unchanged.
Recent statements from policymakers have demonstrated some fear of whether the progress when reducing inflation has stalled. Civil servants also said that they want to see how the previous cuts make their way through the economy, although most of the rate reductions expect this year.
No contact with Trump
Moreover, the decision against a volatile political background comes.
In just over a week, Trump has cut a swad through the Washington policy and political standards, because he has signed hundreds of executive orders who want to implement an aggressive agenda. The president has supported the rates as a tool for economic and foreign policy, ordered a wave of deportations against those who illegally cross the border and has put forward a series of deregulatory measures.
Moreover, last week Trump spoke about his confidence that he would lower inflation and said that he would ‘demand’ that the interest rates will be ‘immediately’ lowered. Although the president has no authority about the FED, except to nominate board members, Trump’s statement has indicated a potentially controversial relationship with the policy makers, just like during his first term.
Powell said he had not had contact with the president since he made those statements.
Inflation lower but not at target
Inflation has started strongly of the 40-year peak that hit the mid-2022, but the goal of 2% of the FED has remained elusive. In fact, the Headline inflation in November showed the preferred price meter of the central bank to 2.4%, the highest since July, while the core measure exclusively kept food and energy at 2.8%.
Traders had priced in a probability of almost 100% that the Fed held the line during this meeting and in fact only seen a cut in June. Markets prices at the end of 2025 in a fund percentage of approximately 3.9%, which implies a probability of 61% of two quarterly percentage this year implies CME group data.
Economic growth is solid and consumer spending has kept well in 2024. The gross domestic product follows an annual growth rate of 2.3% for the fourth quarter, according to the Atlanta Fed, which reduced the estimate of the previous prospects for 3.2 on Wednesday % because data about private domestic investments is weakened.
The meeting also contained a changed voting composition at the FOMC. Powell and the other Seven Board of Governors -members are accompanied this year as voters by regional presidents Austan Goolsbee from Chicago, Alberto Musalem by St. Louis, Susan Collins by Boston and Jeffrey Schmid from Kansas City. The mood to keep the funds unchanged was unanimous.