In its first rate announcment in 2025, the Federal Reserve hit the pause button and maintained the benchmark rate at a range between 4.25% and 4.5%. This follows three straight rate cuts, including a jumbo 50-basis point cut which started the easing cycle in September 2024.
There were expectations that the Federal Reserve would aggressively start lowering rates, given that inflation has been largely contained. However, in December 2024 the Federal Reserve surprised the markets and projected only two rate cuts in 2025, down from four in the September forecast. The Federal Reserve had telegraphed to the market its plan to hold rates on Wednesday and the decision was not a surprise.
Federal Reserve Chair Powell summed up the Federal Reserve’s rate plans when he said at a post-meeting press conference that, “We feel like we don’t need to be in a hurry to make any adjustments” which could mean another pause in March. The rate statement noted that “inflation remains somewhat elevated” and removed any reference to progress being made on inflation, which was stated in the previous statement.
Is the easing cycle over? The Federal Reserve might lower rates only once or twice this year, and some analysts have even predicted that the next rate move will be a hike. The Federal Reserve’s rate path in the coming months will largely depend on the direction of inflation and the strength of the US labor market.
Perhaps the highlight of the meeting was the reaction of US President Trump, who wrote on social media that the Federal Reserve had done a “terrible job” and was responsible for high inflation. Trump has openly called for the Federal Reserve to lower rates and is raising eyebrows with his combative approach to the US central bank, which is supposed to make its decision free of any political considerations.
The Fed Reserve’s decision to maintain rates on Wednesday was widely expected by the financial markets. Both the US dollar and US stock markets have shown limited reaction to the rate announcement.
The US Dollar is practically unchanged on Thursday against the EUR/USD and GBP/USD currency pairs. The Japanese yen has posted gains, as USD/JPY is down 0.40% on Thursday, trading at 154.55.
The stock markets showed limited losses on Wednesday.
The S&P 500 Index declined by 28.39 points (0.47%) and closed the day at 6,039.
The Nasdaq 100 Index declined by 51.58 points (0.24%) and closed at 21,411.46.
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