On Wednesday, the Federal Reserve decided to keep its benchmark interest rate steady, holding the range at 4.25-4.50%. This pause marks a shift from the recent trend of lowering rates, as officials evaluate whether inflation is beginning to level off to meet their desired targets.
Here’s what you need to know:
- The Fed has maintained the federal funds rate target between 4.25% and 4.50%.
- The decision came with unanimous support from the Federal Open Market Committee (FOMC) members.
- The statement highlighted that economic activity is still growing "at a solid pace."
- The committee views the risks to employment and inflation goals as relatively balanced.
The first meeting of the FOMC in 2025 represents a change from the easing cycle seen last December. This change comes in response to inflation, which has nudged back up to around 3%, after previously dropping to 2.4% in September.
The choice to keep rates unchanged follows strong economic data, with GDP growth hitting 3.1% in the final quarter of 2024, and expectations for a 2.3% growth rate in the first quarter of 2025. While the committee continues using language about monitoring conditions for "additional adjustments" to rates, there’s a hint of greater uncertainty about the next steps for future reductions.
You can find the official FOMC Statement for January 2025 on their site.
In their official statement, the FOMC has subtly shifted its language concerning inflation and employment. Where they previously stated, “inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated,” they now simply say, “Inflation remains somewhat elevated.” Regarding employment, the statement has evolved to, “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” compared to the earlier note that said, “Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low.”
During a press conference, when asked about the chance of a rate cut in March, Powell commented, “We think disinflation continues on a broad and bumpy path, that tells me we don’t need to be in a hurry to adjust our policy stance.”
Market Reaction
The U.S. dollar saw little change initially with the Federal Reserve’s announcement. It strengthened briefly during the release of the FOMC statement but lost momentum once Chair Powell began speaking to the press.
By the conclusion of the session, the dollar had dipped against most major currencies, except for a marginal 0.06% increase against the Japanese yen. Meanwhile, USD/CAD dropped slightly, dipping 0.15% below pre-announcement levels, while the Australian dollar and the New Zealand dollar saw minor rises of 0.05% and 0.04%, respectively, against the U.S. currency.
