The US Federal Reserve held its target interest rate unchanged today, pausing its cycle of rate cuts begun last year while signaling it would be on guard against any outbreak of renewed inflationary pressures as policies enacted by President Donald Trump — ranging from tariffs to expulsions of foreign farm workers — are widely expected to spur inflation.
In its first meeting of 2025, the Fed's Federal Open Market Committee (FOMC) held its federal funds rate unchanged at 4.25-4.50pc after cutting it by a quarter point each in December and November last year following a half-point cut in mid-September, the first cut since 2020.
"The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid," The FOMC said in its statement. "Inflation remains somewhat elevated."
"In assessing the appropriate stance of monetary policy, the Committee will continue to monitor the implications of incoming information for the economic outlook," it said, repeating stock language from prior statements. "The Committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge" that could impede attainment of achieving the goal of 2pc annual inflation and low unemployment.
In December, the Fed penciled in 50 basis points worth of cuts for 2025, down from 100 basis points projected in the September median economic projections of Fed board members and Fed bank presidents.
But Fed fund futures have since indicated the likelihood of only 50 basis points of rate cuts this year on strong job growth and an uptick in inflation at the end of last year, along with Trump's plans to hike tariffs, expel illegal immigrants — many of whom work in agriculture, construction and services industries — and cut taxes. Those are all measures economists say are likely to unleash inflation and boost interest rates.
Trump during his first term was openly critical of the Fed chief Jerome Powell and has made remarks signaling he wants a "say" in making monetary policy.
"With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world," Trump told the World Economic Forum last week in Davos, Switzerland.
The consumer price index (CPI) accelerated to an annual 2.9pc in December, a third month of gains from 2.4pc in September, which was the lowest since early 2021 before the economic reopening after Covid-19 lockdowns caused a supply-chain shock that sent CPI as high as 9.1pc in June 2022. The Fed, slow to react, began a series of rate hikes in March 2022 that took the target rate from near zero to more than five percentage points higher by July 2023, keeping it at 5.25-5.5pc through August 2024.
By Bob Willis
