The Federal Reserve is widely expected to keep interest rates unchanged as its two-day policy meeting concludes on January 29. Investors are nearly unanimous in anticipating that the Fed will maintain rates within the current 4.25% to 4.5% range, according to market pricing data.
As reported by the Wall Street Journal, today marks the end of the first Federal Open Market Committee (FOMC) meeting of 2025, with the Fed set to meet seven more times in 2025. Chairman Jerome Powell will reportedly address the public after the talks, in a press briefing scheduled for 7:00 PM GMT.
The FOMC meeting comes at a time when inflation rates remain stubborn, although job market conditions are holding steady, per analysts from WSJ.
Fed likely to maintain interest rates throughout Q1, Q2 2025
According to an opinion poll from financial data research firm FactSet, an overwhelming 9 out of 10 economists are predicting that the central bank will refrain from cutting rates today. The financial market analysts also expect that at its next meeting on March 19, the Federal Reserve will push the possibility of an interest rate reduction to May 7.
In the last FOMC meeting of 2024, Fed Chair Jerome Powell said that rate policy had entered a “new phase” and that any future cuts would be approached with caution. Powell seemed to echo the general sentiment among policymakers, who believe the US will fend off persistent inflationary pressures and any imminent recession risks in the coming months.
Since the first rate cut in September 2024, inflation rates have gone down towards the Fed’s target of 2%, although not by a defined falling pattern. The up-down movement of rates towards the end of 2024 has made the US central bank’s decision-making process a headache.
Former Cleveland Reserve Bank President Loretta Mester, who retired from her role in June 2024, said the central bank has “no compelling reason” to cut rates this week.
“I would want to see convincing evidence that inflation has resumed moving down and right now, I don’t think we have that,” Mester told the New York Times.
According to WSJ insights, investor expectations for inflation over the next one to two years have risen slightly in recent months, though long-term forecasts remain relatively within the 2.0-2.5% levels, but even that depends on if the Fed apply a two-year inflation break-even rate.
Political pressures push for interest rate cuts
Even though markets are leaning towards expectations of a rate hold, investors are focused on Powell’s post-meeting remarks for any signals on the central bank’s future policy direction. It will be the first rate decision under the newly inaugurated President Donald Trump administration.
Wall Street will also be closely watching corporate earnings from major technology companies, including Meta Platforms, Microsoft, and Tesla, as tensions grow following the artificial intelligence (AI) scare that caused equities on the S&P 500 to plummet, fueled by China’s DeepSeek AI unexpected high interest from US markets.
Policymakers will also be observant of how long the Fed intends to maintain its current stance before considering further cuts. For President Trump, who has frequently criticized the chair Powell and the Fed’s monetary policy, any delay in rate reductions puts the bank at loggerheads with the White House.
On January 24, during the World Economic Forum in Davos, Trump stated that his economic policies were driving oil prices down and that he would “demand that interest rates drop immediately.”
Still, tensions remain as high as they were last year, as the decision to cut rates in December was not unanimous. One Fed official voted against the move, and minutes from the meeting released in early January revealed internal debates over whether inflation was “declining fast enough” to justify further reductions.
Trump tariffs scare Fed officials from cutting rates
During his last public address in 2024, Powell partly related the Fed’s hesitancy on rate cuts to the uncertainty surrounding trade policies under the new administration.
Officials and economists both acknowledge that Trump’s proposed economic policies could significantly alter the inflation outlook. While tariffs were absent from Trump’s initial round of executive orders, recent reports say he has hinted at them taking effect as early as February 1.
If implemented, the Federal Reserve could face additional inflationary pressures, making it hesitant to cut interest rates, a decision that the current administration will not take kindly.
“If tariffs come on the high side and if deportations bite more than expected, you could very well imagine inflation going back up and that could put the Fed on pause for the whole year,” commented Joseph Gagnon, a former Senior Head Staff at the US central bank.
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