US Fed holds key rates steady at 4.25-4.50% in first policy verdict of Trump Presidency; 5 key highlights
- US Federal Reserve sustained its key interest rate at 4.25-4.50 per cent in the first policy verdict of 2025, citing somewhat ‘elevated inflation’ and did not provide guidance on future rate cuts.
The US Federal Reserve announced its first monetary policy decision for 2025 under the Trump Presidency after a two-day Federal Open Market Committee (FOMC) meeting and left the benchmark interest rate steady at 4.25-4.50 per cent. The decision comes after US Fed chair Jerome Powell-led rate-setting panel last cut rates for three straight meetings after kicking off its policy easing cycle in September 2024 for the first time in four years.
US Fed conveyed a deliberate approach to decisions and gave little insight into when further reductions in borrowing costs may occur. “In considering the extent and timing of additional adjustments to the target range for federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” said the FOMC in its policy statement.
Follow Live Updates: US Fed Meeting LIVE: Wall Street slips after Powell-led FOMC holds key rates steady in first policy verdict of 2025
US Fed Chair Jerome Powell said in the post-policy press conference that the central bank does not need to be in a hurry to adjust the policy stance and that the rate pause is to see further progress on inflation. FOMC stated that labour market conditions remain solid, and inflation remains ‘somewhat elevated’.
US Fed Policy January 2025: Here are 5 key highlights
1.US Fed leaves key interest rates unchanged in first policy review of 2025
US Fed Policymakers voted unanimously to leave the benchmark interest rate unchanged at 4.25-4.50 per cent. US Fed had lowered the key overnight interest rates by a full percentage point in the final months of 2024. The pause in rate cuts comes amid uncertainty about how inflation will evolve.
Strong economic growth and a solid labour market allow officials to wait for further evidence of cooling inflation before adjusting rates again. This also allows Fed policymakers to evaluate how US President Donald Trump‘s policies on immigration, tariffs, and taxes may impact the world's largest economy.
"Economic activity has continued to expand at a solid pace. Unemployment rate has stabilized at a low level in recent months, and labour market conditions remain solid," said the FOMC in its statement. It added that the risks to achieving its employment and inflation goals are ‘roughly in balance’.
2.US Fed to ‘wait and see’ how Trump's policies weigh on economy
Regarding the likely impact of Trump's proposals, including tariffs, Powell said the US Fed would have to "wait and see" how they affected the economy. “We don’t know what will happen,” he added. “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," said Powell.
US Fed officials say they largely believe progress in lowering inflation will resume this year, but they have now put rates on hold as they await data to confirm this. Recent key inflation readings remain about half a percentage point or more above the US Fed's target, far lower than the 40-year highs after COVID.
Powell has said it is harder to gauge where inflation is headed, in part because of increased uncertainty around what policies Trump will adopt and how quickly they will affect the economy. Analysts say higher tariffs and tax cuts could push inflation higher, while deregulation could possibly reduce it.
Last month, Fed officials signalled they expect two rate cuts for 2025, a shallower path of reductions than previously anticipated. Policymakers will update their projections on the economy and rates at their next meeting in March. Given the uncertainty about the effect of Trump's policies on the US economy, analysts are divided over how many rate cuts are expected in 2025.
3.Donald Trump slams US Fed, Powell: ‘Terrible job on banking regulation"
After the US Fed policy verdict, US President Donald Trump assailed the US Federal Reserve’s approach to bank regulation and accused US Fed Chair Powell of fumbling the fight against inflation while refraining from directly commenting on interest rates.
“The US Fed has done a terrible job on bank regulation. Treasury is going to lead the effort to cut unnecessary regulation and will ‘unleash lending’ for all American consumers and businesses,” Trump posted on his social media site Truth Social.
Regarding the current US Fed rates, Trump has said that he seeks to lower them by unleashing energy production and would speak to the US Federal Reserve if needed. "I'll demand that interest rates drop immediately," he told the World Economic Forum in Davos, Switzerland, in a virtual address last week.
At a White House event following Davos, Trump said, "I think I know interest rates much better than they do, and I think I know it certainly much better than the one who's primarily in charge of making that decision," in an apparent reference to US Federal Reserve Chairman Jerome Powell.
The US Federal Reserve has a dual mandate to act independently and keep inflation and employment in check, primarily by raising and lowering short-term interest rates. It does so primarily by raising or lowering its key short-term lending rate, influencing consumer and business borrowing costs.
4.US Fed to slow down pace of balance-sheet runoff
In its policy statement, FOMC said, ‘’The Committee will continue reducing its holdings of Treasury securities, agency debt and agency mortgage‑backed securities.'' The Fed maintained the monthly cap on the amount of Treasuries it allows to mature each month without being reinvested at $25 billion while keeping the cap for mortgage-backed securities unchanged at $35 billion.
The US Fed had announced last year it would scale back the pace at which it is shrinking its balance sheet starting on June 1, 2024 allowing $25 billion in Treasury bonds to run off each month compared to $60 billion.
5.Wall Street dips, Big Tech under pressure, while US bond yields rise after Fed holds pause on rates
US stocks slipped and bond yields rose, though both pared bigger moves as early concern that the US Federal Reserve was growing more worried about inflation got tamped down by US Fed Chair Jerome Powell. The S&P 500 was trimmed by about half a slide, which had approached one per cent earlier. The US dollar was little changed.
Big tech remained under pressure ahead of the group’s earnings season, with Meta, Microsoft, and Tesla reporting their numbers after the closing bell. Treasury yields came off session highs. Overall, the S&P 500 fell 0.5 per cent, Nasdaq 100 dropped 0.3 per cent, and Dow Jones Industrial Average slid 0.3 per cent. The yield on 10-year Treasuries advanced two basis points to 4.55 per cent.
With inputs from AP, AFP, Bloomberg, and Reuters
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