The Federal Reserve concluded its first meeting of 2025 with a decision to keep interest rates unchanged, signaling a more cautious approach to inflation and economic growth. The central bank's Federal Open Market Committee (FOMC) maintained the benchmark interest rate at 4.25%-4.5%, halting its previous trend of rate cuts. This move was widely expected by markets, especially as inflation remains above the Fed’s 2% target.
Despite three consecutive rate cuts in 2024, the Fed’s latest statement showed less confidence in inflation control than in December. Officials acknowledged that inflation remains elevated and removed previous wording that suggested significant progress had been made toward the 2% goal. However, the labor market was described as strong, with unemployment stabilizing at low levels. Fed Chair Jerome Powell emphasized that the central bank is not yet ready to cut rates further, stating that either substantial inflation progress or a weakening job market would be needed before adjustments are made.
Markets reacted negatively to the decision, with stocks declining following the announcement. Investors had hoped for clearer guidance on when rate cuts might resume, but Powell avoided committing to a specific timeline. Traders now expect the next potential rate cut in June, with a 61% chance of two quarter-point cuts by the end of 2025, according to CME Group data.
The Fed’s decision also comes amid a volatile political backdrop. President Donald Trump, who recently began his second term, has strongly advocated for immediate rate cuts, arguing that high interest rates hurt economic growth. Trump’s push for lower rates has raised concerns about political interference in central bank policy, though Powell reaffirmed the Fed’s independence. He confirmed that he has had no direct contact with Trump since the president’s recent remarks.
Inflation has cooled significantly since its 40-year high in mid-2022, but recent data suggests some upward movement. In November, the Fed’s preferred inflation gauge increased to 2.4%, the highest since July, while core inflation remained at 2.8%. Economic growth has also remained steady, with fourth-quarter GDP expected to grow at 2.3%, slightly lower than earlier projections.
This meeting also marked a shift in voting members within the FOMC, as regional Fed presidents from Chicago, St. Louis, Boston, and Kansas City joined the decision-making process. The vote to keep rates unchanged was unanimous, reflecting a consensus on maintaining a cautious stance.
Looking ahead, the Fed will closely monitor inflation trends, labor market conditions, and the broader economic impact of Trump’s policies. While rate cuts are still expected later in the year, Powell made it clear that the central bank will act based on economic data rather than political pressure.
