The Federal Reserve on Wednesday opted to hold interest rates steady amid rising inflation, ending a streak of lowering rates at its previous three meetings.
After a two-day meeting of its monetary policy committee in Washington, the Fed announced it would hold its rate target at 4.25% to 4.50%. Investors anticipated the move. The Fed’s target rate remains a full percentage point lower than it was when it pivoted to cutting rates in September 2024.
Over the past several months, the Fed has signaled that interest rate cuts would continue gradually. But in recent months, inflation has proved sticky while the labor market has remained resilient, decreasing the willingness of the central bank to keep cutting.
“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,” Fed Chairman Jerome Powell said at a news conference. “We know that reducing policy restraint too fast or too much could hinder progress on inflation.”
This was the first Fed interest rate decision since President Donald Trump entered office. Trump, who famously prefers lower interest rates, inherited an economy in which inflation is still too hot, and analysts are watching closely how the president reacts to the latest decision.
The most often-cited inflation gauge for the public is the consumer price index. CPI inflation hit its lowest point since it started picking up in September 2024 but has since ticked up a bit to 2.9%, showing that inflation is proving more stubborn than expected. The Fed’s goal is 2% inflation.
Aside from the CPI, the Fed looks at another inflation gauge, the personal consumption expenditures index, when analyzing its next steps. The PCE index also ticked up in the most recent reading, rising to 2.4% in November 2024.
Core PCE inflation, a measure of inflation that strips out volatile energy and food prices, remained at a 2.8% year-over-year rate.
If inflation continues to prove sticky, it could cause the Fed to keep rates higher in 2025.
Trump’s relationship with Fed Chairman Jerome Powell will be of particular interest given the latest rate decision. Trump first nominated Powell, a Republican, to lead the Fed during his first term, and former President Joe Biden later renominated him.
Powell managed to garner support from Democrats because of his defense of the central bank’s independence during Trump’s first term and for his strong support for the pursuit of full employment. He and Trump were in open conflict over monetary policy.
While previously in office, Trump criticized Fed policy, blasting the central bank for raising interest rates too quickly. It was reported Trump had private discussions about firing Powell, who has said consistently that he does not believe Trump has the authority to fire him.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
The labor market has given the Fed some leeway in holding rates steady.
The economy added 256,000 jobs in December 2024, and the unemployment rate fell one-tenth of a percentage point to 4.1%, according to the Bureau of Labor Statistics.
