Adds Powell comments, details
US Federal Reserve policymakers held their target interest rate unchanged today, citing "somewhat elevated" inflation even as the jobless rate has shown "some signs of stabilization."
The Fed's Federal Open Market Committee (FOMC) kept the federal funds rate at 3.5-3.75pc in the first meeting of the year, following quarter point cuts in September, October and December last year.
"The outlook for economic activity has clearly improved since the last meeting, and that should matter for labor demand and employment over time," Fed chair Jerome Powell told reporters after the meeting. "After the three recent rate cuts, we are well positioned to address the risks we face on both sides of our dual mandate," he said, referring to the Fed's mandate of promoting maximum employment and stable prices.
Even as job growth slowed sharply last year, the unemployment rate edged lower to 4.4pc in December from 4.5pc in November. He attributed the slow hiring to a shrinking labor force due to the US' clamp-down on immigration and fewer job openings as artificial intelligence reduces the need for certain jobs.
"Labor supply came way down," he said, but it "turns out demand for labor also came down a very similar amount."
The economy grew at a 4.4pc annual rate in the third quarter last year, even though when averaged for the first three quarters it came in at 2.5pc. Powell noted that core PCE inflation, the Fed's favorite gauge, ended the year at 3pc, above the Fed's long term 2pc goal. But he added that some of that gain was an overshoot due to tariffs on goods, whose effects he said would dissipate.
Tariffs less than announced
"Our economy has pulled through pretty well,... given the very significant changes in trade policy," he said.
US tariff announcements in many cases were far higher than what was implemented, Powell said, while other countries did not retaliate as significantly as expected. Also much of the tariff costs have yet to be passed through to consumers, he said, "... being taken by companies that stand between the consumer and the exporter."
Powell said the Fed "will continue to make our decisions meeting-by-meeting, based on the incoming data and the implications and outlook for the balance of risks."
The Fed in December penciled in one quarter-point rate cut this year, following 1.75 basis points worth of cuts in 2025 and the prior year that brought the target rate down from a more than two decade high.
Independence and Trump offensive
The meeting comes as US president Donald Trump has ratcheted up his campaign to undermine the independence of the central bank.
The Justice Department recently launched a criminal investigation into Powell's testimony before Congress regarding cost overruns on a Fed building project, following months of public pillorying of Powell for allegedly being "too slow" to cut rates. Trump has also sought to unseat a Fed governor over alleged mortgage fraud. Powell's term as chair ends in May.
Asked about Trump's attacks on him and the Fed, Powell said central banks were independent "pretty much everywhere among the countries that look at all like the United States. If you lose that .... it would be hard to restore the credibility of the institution."
Before the Fed's rate announcement, the CME's FedWatch tool on Wednesday showed a 0.6pc probability of a quarter-point cut, with 99.4 odds of a hold.
