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By Gabe Whisnant
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On Wednesday, the Federal Reserve opted to keep its benchmark interest rate unchanged after reducing it three times consecutively last year. This decision reflects a more cautious stance as the Fed aims to assess the future direction of inflation and the policies that President Donald Trump may implement.
Newsweek reached out to the Trump administration via email Wednesday afternoon for comment.
Why It Matters
Last year, the Fed lowered its rate from 5.3 percent to 4.3 percent, partly due to concerns about a weakening job market. Over the summer, hiring had slowed, and the unemployment rate had increased, prompting Fed officials to approve an unusually large half-point cut in September. However, hiring recovered last month, and the unemployment rate declined slightly to a low of 4.1 percent.
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What To Know
Federal Reserve Chair Jerome Powell emphasized the challenges in predicting inflation's path, particularly with the uncertainty around Trump's policies, such as tariffs, tax cuts and immigration measures. Trump's proposed policies could lead to higher prices, affecting the Fed's strategy to control inflation by maintaining higher interest rates to curb borrowing and spending.
Whether or not Trump will react to the Fed's decision to keep interest rates steady remains uncertain. During a recent appearance in Davos, Switzerland, Trump declared his intention to reduce energy prices and subsequently "demand" that the Fed lower borrowing costs.
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When pressed by reporters on whether he believed the Fed would heed his demands, Trump responded affirmatively with "yes." Traditionally, presidents have refrained from publicly pressuring the Federal Reserve, respecting its political independence.
"I'm not going to have any response or comment on whatever the president said," Powell said. Asked if Trump had communicated his desire for lower rates directly to Powell, the Fed chair said he had "no contact."
Goldman Sachs economists expect only two more rate cuts this year, which are predicted for June and December while acknowledging the ambiguity around policy impact. The slightly improved core prices, excluding food and energy, increased by 2.8 percent from the previous year. The Fed generally focuses on core prices as predictors of future inflation trends.
Other central banks, like the European Central Bank and the Bank of Canada, are expected to cut their borrowing costs soon, contrasting with Japan's Bank, which is raising rates after prolonged economic stagnation.
In the U.S., borrowing costs remain high, including the average rate on a 30-year mortgage hovering just below 7 percent.
What People Are Saying
Powell said at a news conference on Wednesday: "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."
Lindsay Rosner, head of multi-sector fixed income investing at Goldman Sachs Asset Management, told the Associated Press: "While we continue to think the Fed's easing cycle has not yet run its course, the (Fed) will want to see further progress in the inflation data to deliver the next rate cut."
What Happens Next
Though the Fed cut its rate last year, many investors anticipate steady economic growth and persistent inflation, thereby maintaining elevated borrowing rates. As Trump's administration plans more economic changes, the Fed remains observant, poised to adjust its policies based on upcoming economic data and policy implementations.
This article includes reporting from The Associated Press.
Update 1/29/25, 2:53 p.m. ET: This article was updated with additional information.
Update 1/29/25, 4:15 p.m. ET: This article was updated with additional information and comments.
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