MNI: Fed Says Inflation Elevated As It Keeps Rates On Hold
MNI (WASHINGTON) - The Federal Reserve kept interest rates on hold Wednesday for the first time in six months, while offering little in the way of new guidance on the future path of borrowing costs.
The FOMC statement described inflation as "somewhat elevated" and the jobless rate as having "stabilized at a low level in recent months."
After falling steadily in 2023 and the early part of 2024, inflation appears to have stalled around 2.5-3%, still significantly above the central bank's 2% goal. This has led policymakers to become more cautious about delivering additional cuts, particularly in light of looming inflation risks coming from the Trump administration's expected tariff policies and curbs on immigration.
"In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the statement said. The language was unchanged from the December statement.
HOW RESTRICTIVE
There is significant disagreement within the committee about how far the destination is on rates -- that is, how much more easing the central bank must deliver before rates can be considered neutral.
Starting in September, the central bank reduced the federal funds rate by 100 basis points to a range of 4.25-4.5%. In December, policymakers forecast a median two rate cuts for 2025 as a whole, down from four in September as inflation pressures proved more persistent and the economy resilient.
Investors do not see the Fed cutting rates again until June, according to futures markets.
Trump has threatened to impose major tariffs on key trading partners starting Feb. 1.
Fed Chair Jerome Powell will face questions from reporters in his post-meeting press conference ranging from his expectation on the impact of such policies to the likely timing of future rate cuts. He'll be asked if there's a possibility the Fed could be done cutting rates altogether given rising inflation risks.
For now, the labor market remains strong. The latest employment report for December showed an surprisingly robust gain of 256,000 new jobs and a decline in the jobless rate to 4.1%.
Fourth quarter GDP, due Thursday, is expected to have posted a solid 2.7% annual increase.