No rate cuts as the Fed takes a wait-and-see approach
“We’re not on any preset course,” said Fed Chair Jerome Powell, who noted it was too early to predict how Trump policies will affect the economy.
Key points:
- Asked about Trump’s recent “demand” for lower interest rates, Powell said he would not have “any response or comment whatsoever.” The Fed “will continue to do our work as we always have.”
- The Federal Reserve is not “in a hurry to make any adjustments," Powell said during a press conference following the FOMC’s Jan. 29 meeting.
- There were no changes to the forecast of two rate cuts in 2025, but a March cut appears unlikely.
The Federal Reserve's first meeting of the year ended with no surprises — and no change to the federal funds target rate, which remains at 4.25-4.5%.
Fed Chair Jerome Powell said the decision to pause cuts was based on the strength of the economy and indications of stability in the housing and employment sectors. He also emphasized that the FOMC — the body tasked with setting monetary policy — would make adjustments "as the economy evolves."
"We are not on any preset course," Powell said during the post-meeting press conference.
Continuing to take a cautious approach
After December's meeting, Powell said the central bank was entering a "new phase" in its approach to rate cuts. "From this point forward, it's appropriate to move cautiously and look for further progress on inflation," he said at the time.
Powell reiterated that stance on Jan. 29, telling reporters that "we feel like we don't need to be in a hurry to make any adjustments."
Trump versus the Fed
Some economists believe the Trump administration's proposed tariffs could reverse the "progress on inflation" that Powell highlighted last month. If inflation moves back up, the Fed would be less likely to consider cuts and could even raise rates in 2025 — despite Trump's insistence during an address to the World Economic Forum on Jan. 23 that he would "demand that interest rates drop immediately."
Such demands are unlikely to influence the Fed's decision-making, said Melissa Cohn, Regional VP of William Raveis Mortgage. "The Fed is all about data and nothing else. They are an independent body and will not just lower rates if asked."
Powell seemed to agree, saying at today's press conference that he would not have "any response or comment whatsoever on what the president said," adding that "the public should be confident that we will continue to do our work as we always have." He also noted that the president has not contacted him directly with any demands.
Regarding the possible effects of Trump's proposals, Powell said the board was taking a wait-and-see approach. "We don't know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. … 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."
He also deflected questions about recent executive orders related to reducing the federal workforce, spending and DEI programs: "I'm not going to discuss anything that any elected politician might say," Powell said flatly.
A March rate cut unlikely
Last month, the Fed cut rates by a quarter point, but Powell noted at the time that it was a "closer call," and the FOMC was not in unanimous agreement.
Given the recent strength of the economy and job market, "the case for further monetary loosening in the coming months is increasingly less compelling," said Dr. Selma Hepp, CoreLogic Chief Economist.
When asked directly if the Fed would cut rates at its next meeting in mid-March, Powell repeated an earlier talking point: "The broad sense of the committee is that we don't need to be in a hurry to adjust our policy stance" — suggesting that a March cut is not currently on the table.
While the Fed didn't change its forecast of two rate cuts this year, some analysts have recently suggested that we may not see any cuts in 2025.