Federal Reserve Leaves Rates Unchanged at 1st Meeting of Trump Era

Federal Reserve Chairman Jerome Powell speaks during a news conference at the end of the two-day Federal Open Market Committee (FOMC) meeting at the Federal Reserve in Washington on Jan. 29, 2025. Andrew Caballero-Reynolds/AFP via Getty Images

In its first meeting since President Donald Trump returned to the White House, the Federal Reserve left interest rates unchanged for the first time since July, pausing its easing cycle.

Officials unanimously voted to keep the benchmark Federal Funds Rate steady at a range of 4.25 percent to 4.5 percent.

A statement by the rate-setting Federal Open Market Committee did not consist of language highlighting that inflation has made progress toward the 2 percent objective.

“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the FOMC said. “Inflation remains somewhat elevated.”

Fed Chair Jerome Powell, speaking to reporters at the post-meeting press conference, stated that officials need to observe “real progress on inflation or some weakness in the labor market before we consider making adjustments.”

In recent months, inflation has proven to be a sticky substance, remaining well above the Fed’s 2 percent inflation target.

Despite that inflation progress has stalled, Powell verified that policymakers are not in a hurry to adjust policy.

“With our policy stance significantly less restrictive than it had been, and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” he said.

With the central bank’s five-year monetary policy review on the horizon, there has been speculation that the Fed could raise the target to 3 percent. However, Powell confirmed this would not be the case.

“The committee’s 2 percent inflation goal will be retained and will not be a focus of the review,” the Fed chief told reporters.

Market Reaction

Investors overwhelmingly expected the central bank to leave rates alone. In December 2024, the Fed signaled that it would refocus its efforts on combating inflation after three straight increases.

However, U.S. stocks were in the red following the announcement, with the leading benchmark indexes down as much as 0.9 percent.

Treasury yields were up across the board as the benchmark 10-year yield firmed above 4.57 percent. The 2- and 30-year yields rose to 4.25 percent and 4.81 percent, respectively.

Stocks pared much of their losses during the press conference as Powell shrugged off the statement adjustment, calling it a “language cleanup.”

Investors should not shift their market views after the slightly more hawkish stance, according to Larry Tentarelli, the chief technical strategist for Blue Chip Daily Trend Report.

“We view this as a non-event and that investors should have no change in market views,” Tentarelli told The Epoch Times.

“Our expectation has been no rate cut in Q1 2025, based on somewhat sticky inflation and a strong labor market.”

Investors anticipate less Fed easing this year and expect the central bank to wait until June to cut interest rates.

Tom Essaye, president and founder of Sevens Report Research, said that the January FOMC meeting was calmer than previous meetings since markets had already factored in a pause.

“This meeting is still very important because the main reason stocks dropped in late December/early January was because of fears the Fed has paused,” Essaye told The Epoch Times. “If those fears resurface following this meeting, it’ll be an additional headwind on stocks.”

Until there is a notable improvement in inflation, the U.S. economy is “unlikely” to see any rate cuts, according to Greg McBride, the chief financial analyst at Bankrate.

“The progress toward 2 percent inflation has stalled out, and the Fed knows it,“ McBride told The Epoch Times. ”They gave no indication in their post-meeting statement that a resumption of rate cuts is likely at the next meeting in March. It will take a run of good inflation data to get us there, whenever that may be.”

The Trump Wild Card

The Fed is waiting for the new administration to outline its economic agenda, particularly on the trade front. Powell told reporters at last month’s post-meeting press conference that he and his colleagues have yet to devise policy because the president’s proposals have not been clearly defined. Still, the Fed could be bracing for a contentious relationship with Trump.

Last week, Trump told the World Economic Forum that he would demand that the Federal Reserve cut interest rates and encouraged the rest of the world to do the same.

“With oil prices going down, I'll demand that interest rates drop immediately, and likewise they should be dropping all over the world,” the president said.

At a White House event, Trump touted his monetary policy prowess.

“I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making that decision,” Trump said, alluding to Powell, whom Trump appointed in 2018.

Powell has repeatedly emphasized the Fed’s independence and stressed that the central bank is free from political influence.

Powell confirmed to reporters on Jan. 29 that he has not had any contact with Trump.

“I’m not going to have any response or comment whatsoever on what the president said,” he said. “It’s not appropriate for me to do so.”

Several officials, including Fed Gov. Michelle Bowman, have remarked on the new administration.

She urged her colleagues to refrain from prejudging policy proposals.

“We should also refrain from prejudging the incoming administration’s future policies,” Bowman said in prepared remarks at the California Bankers Association on Jan. 9. “Instead, we should wait for more clarity and then seek to understand the effects on economic activity, the labor market, and inflation.”

The Path to ‘Neutral’

Has the Federal Reserve achieved a neutral interest rate?

Monetary policymakers are discussing whether the central bank has lowered interest rates enough to be neutral—a policy rate that neither stimulates nor restricts economic growth—or whether more rate cuts are necessary.

Bowman, the lone vote opposing the central bank’s super-sized half-point rate cut in September, said she believes that the central bank is inching closer to neutrality.

“Looking ahead, we should be cautious in considering changes to the policy rate as we move toward a more neutral setting,” she said.

“While it is not my baseline outlook, I cannot rule out the risk that progress on inflation could continue to stall.”

According to Jeffrey Schmid, the head of the Kansas City Fed, interest rates could “be very close to their longer-run level now.”

“Regardless, I am in favor of adjusting policy gradually going forward and only in response to a sustained change in the tone of the data,” Schmid said in a speech at the Central Exchange of Kansas City earlier this month. “The strength of the economy allows us to be patient.”

Last month, the Fed enacted another quarter-point cut to the benchmark federal funds rate, reducing it to a range of 4.25 percent to 4.5 percent.

The revised Summary of Economic Projections indicates that officials anticipate the median policy rate will close the year at 3.9 percent, implying two quarter-point reductions. This is a decrease from the earlier prediction of four quarter-point reductions.

Speaking at the Paris-based Organization for Economic Cooperation and Development, Fed Gov. Christopher Waller said he thinks policy could be restrictive—interest rates that can reduce inflation and douse an overheating economy.

Minutes from last month’s meeting indicated that officials were worried about upside inflation risks, though not enough to consider rate hikes.

“Almost all participants judged that upside risks to the inflation outlook had increased. As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy,” the document stated.

The next two-day FOMC meeting is scheduled for March 18 and 19.