The Federal Reserve made no changes in interest rate policy at the conclusion of a two-day meeting Wednesday. The Federal Open Market Committee will hold rates steady in a range of 4.25% to 4.5% as officials maintain a wait-and-see attitude toward the economy and Fed policy.
In a statement, the FOMC said the U.S. economy continues to expand “at a solid pace,” while the unemployment rate has “stabilized at a low level in recent months” and the labor market continues to be “solid.” Inflation, however, remains “somewhat elevated,” above the Fed’s 2% target rate.
At a press conference following the conclusion of the meeting, Fed Chair Jerome Powell said that in his view interest rate policy is still restrictive, but not excessively so. He added that Fed officials would like to see further progress in reducing the inflation rate to the central bank’s 2% target before making any moves to further ease interest rates. The Fed cut rates at the three previous FOMC meetings, starting in September.
What the experts are saying: Economists expected the Fed to stand pat on rates at the January meeting. Recent economic data continues to demonstrate signs of strength, with healthy consumer demand and wage growth driving prices higher, resulting in inflationary pressure that has proven to be stickier than expected, even as the inflation rate has moved toward the 2% target.
In addition, the Trump administration has promised policy changes including tax cuts and tariffs that could prove to be inflationary, reducing the desirability of additional rate cuts, at least until Fed officials see how the Trump policies play out.
“We don’t know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy,” Powell said. “We’re only just beginning to see and actually are not really beginning to see much. And I think we need to 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.”
Former Fed official Richard Clarida, now an adviser at bond giant Pimco, told The Wall Street Journal that the central bank has two paths ahead of it. On one, the Fed sees additional signs of inflation weakening over the next few months and begins cutting rates again this spring. On the other path, inflation stubbornly refuses to fall further or even picks up again, forcing the Fed to hold rates steady for an extended period.
Investors on Wall Street sold off stocks Wednesday afternoon as they contemplated that second option, with the S&P 500 falling about half a percentage point. But Seema Shah, chief global strategist at Principal Asset Management, told The New York Times that the central bank was doing the prudent thing. “The reality is that the Fed is simply trying to respond to the data and the new administration’s policies as they unfold,” she said. “At times like these, when government policy – particularly tariff policy – is so uncertain, they do not have a forecasting edge. Keeping policy rates on hold until a clear direction starts to emerge is sensible.”
Potential political clashes ahead: A few hours after the Fed announced its decision on rates, President Trump lashed out at Powell and the central bank on his social media platform.
“Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing,” Trump wrote. The president added that the Fed had “done a terrible job” regulating the banks, a problem that he vowed the Treasury Department would fix. And he accused the Fed of failing to do its job while it was preoccupied with culture war issues, though it was not clear what events he was referring to. “If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, Inflation would never have been a problem. Instead, we suffered from the worst Inflation in the History of our Country!”
Trump’s vitriolic response comes less than a week after he hinted that he planned to try to interfere with Fed policymaking. “I’ll demand that interest rates drop immediately,” Trump told an audience of financiers, politicians and celebrities in Davos, Switzerland, last week, speaking via video.
Trump, who appointed Powell to the top position at the central bank during his first term in office, has clashed with the Fed leader before. In 2019, he accused Powell of holding back the economy by refusing to make larger interest rate cuts – a dynamic that could once again be in play. “The only problem we have is Jay Powell and the Fed,” Trump wrote at the time. “He’s like a golfer who can’t putt, has no touch. Big U.S. growth if he does the right thing, BIG CUT - but don’t count on him! So far he has called it wrong, and only let us down.”
Powell touched on political issues Wednesday, telling reporters that he had had no contact with Trump since the president’s remarks to the Davos audience. “I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so,” Powell said. “The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work.”