Federal Reserve Keeps Interest Rates Unchanged, Reversing Recent Trend of Easing Policy
The Federal Reserve held its key interest rate steady on Wednesday, reversing a recent trend of easing policy as it examines the economic and political landscape ahead. The central bank’s Federal Open Market Committee left the overnight borrowing rate unchanged in a range between 4.25%-4.5%.
The decision follows three straight cuts since September, worth a full percentage point, and marks the first Fed meeting since Donald Trump took office. Trump has publicly expressed his desire for the central bank to cut rates, but Chair Jerome Powell indicated that the labor market has not been a significant source of inflationary pressure.
The post-meeting statement offered a more optimistic view on the labor market, stating that the unemployment rate has stabilized at a low level in recent months and labor market conditions remain solid. However, it also noted that inflation remains somewhat elevated.
Powell added that the central bank would need to see “real progress on inflation or some weakness in the labor market before we consider making adjustments.” The statement also indicated that the economy has continued to expand at a solid pace.
The decision was met with a decline in stock prices, as some policymakers have expressed concerns about whether progress in bringing down inflation has stalled. Officials have also said they want to see how the previous cuts are working their way through the economy.
The move comes against a volatile political backdrop, with Trump having made hundreds of executive orders and expressing confidence that he will bring down inflation. Powell has not had any contact with the president since his statements.
Inflation has moved down sharply from its 40-year peak, but remains above the Fed’s 2% goal. The central bank’s preferred pricing gauge showed headline inflation ticked higher to 2.4% in November, while the core measure excluding food and energy held at 2.8%.
Traders are pricing in a nearly 100% probability of the Fed holding the line at this meeting and do not see another cut coming until June. Markets are pricing in a funds rate of about 3.9% by the end of 2025, implying a 61% probability of two quarter percentage point cuts this year.
