The Federal Reserve held interest rates steady on Wednesday and gave little insight into when further reductions in borrowing costs may take place in an economy where inflation remains above target, growth continues, and the unemployment rate is low.
Some analysts see the development as resisting pressure from President Donald Trump to continue cuts in the first rate decision since his return to office.
After several months in which inflation data have largely moved sideways, the U.S. central bank dropped from its latest policy statement language saying that inflation “has made progress” towards the Fed’s 2% inflation goal, noting only that the pace of price increases “remains elevated.”
Recent key inflation readings remain about half a percentage point or more above the Fed’s target.
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Fed officials say they largely believe the progress in lowering inflation will resume this year, but have now put rates on hold as they await data to confirm it.
“Economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the central bank’s policy-setting Federal Open Market Committee said in a statement after the end of its latest two-day meeting.
“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,” it said.
Speaking at a press conference following the release of the policy statement, Fed Chair Jerome Powell said “we do not need to be in a hurry to adjust our policy stance” and monetary policy is “well positioned” for the challenges at hand. He noted there are risks to cutting rates too aggressively, saying “we know that reducing policy restraint too fast or too much could hinder progress on inflation.”
The unanimous decision to keep the overnight interest rate in the current 4.25%-4.50% range, coupled with the new statement, puts the Fed in a holding pattern as officials await further inflation and jobs data and clarity on the impact of President Donald Trump’s policies.
After the release of the statement, short-term interest rate futures showed that investors expect the central bank to hold off on cutting rates again until June. U.S. bond yields were little changed while stocks lost some ground.
The Trump administration already has moved to deport some undocumented immigrants and freeze federal spending, and could broaden its reach to include as soon as this weekend new import tariffs on major trading partners such as Mexico and Canada.
‘MILDLY HAWKISH’
The decision to hold the policy rate steady was widely anticipated following three consecutive rate cuts in 2024 that reduced the Fed’s benchmark rate by a full percentage point.
There is debate at the central bank about how much further rates may need to fall, with policymakers anticipating perhaps two quarter-percentage-point rate cuts over the course of the year.
“The Fed seems to think the economy is stuck with a low unemployment rate and elevated inflation,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The statement could be read to be mildly hawkish, suggesting that a little jolt to rates could kick the economy out of this equilibrium.”
Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management, said, “while we continue to think the Fed’s easing cycle has not yet run its course, the FOMC will want to see further progress in the inflation data to deliver the next rate cut, highlighted by the fact they removed the reference on inflation making progress.”
Fed officials say they want to see if inflation continues to fall to the Fed’s target in the months ahead before easing monetary policy again, while also expressing uncertainty about the effect Trump’s plans will have on price pressures, the labor market and economic growth.
