The Federal Reserve on Wednesday announced that it will leave interest rates unchanged amid uncertainty about inflation and economic conditions.
The Fed’s decision leaves the benchmark federal funds rate at a range of 4.25% to 4.5% and follows three consecutive interest rate cuts at the central bank’s most recent meetings – including a 50-basis-point cut in September as well as a pair of 25-basis-point reductions in November and December.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” wrote members of the Federal Open Market Committee (FOMC), the group responsible for guiding the Fed’s monetary policy. “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.”
The FOMC statement said that the Fed continues to pursue its dual mandate of achieving maximum employment and inflation at 2% over the longer run. It added that the “economic outlook is uncertain, and the Committee is attentive to risks to both sides of its dual mandate.”
FOMC members were unanimous in the decision to leave rates unchanged at this time. The committee’s statement added that policymakers “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals” and that it will consider a range of information including labor market data, inflation pressures and expectations, as well as financial and international developments as it considers its next move.
Fed Chair Jerome Powell spoke at a press conference following the announcement and said, “Overall, a wide set of indicators suggest that conditions in the labor market are broadly in balance. The labor market is not a source of significant inflationary pressures. Inflation has eased significantly over the past two years, but remains somewhat elevated relative to our 2% longer-run goal.”
Powell noted that the Fed lowered interest rates by a full point over its three prior meetings and that the recalibration was appropriate “in light of the progress on inflation and the rebalancing in the labor market.”
“With our 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,” Powell explained. “We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, reducing policy restraint too slowly or too little could unduly weaken economic activity and employment.”
Powell was asked by a reporter if he had a response to President Donald Trump’s comments to the World Economic Forum last week when he said he would “demand” that interest rates be lowered, with a reporter asking if Trump relayed that demand to him, as well as if he had a response or what the effect of such comments by the president are.
“I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so. But the public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work and that’s how we best serve the public,” Powell said.
In response to a follow-up question, Powell added that he’s had no contact with President Trump.
Powell also took a question about how he and the Fed can reassure the American public that the central bank will continue to operate independent of politics.
“As I’ve said countless times over the years – this is who we are, this is what we do. We study the data, we analyze how it will affect the outlook and the balance of risks, and we use our tools to try to give our best understanding, our best thinking to try to achieve our goals,” he said. “That’s always what we do. Don’t look for us to do anything else.”
“Lots of research shows that’s the best way for a central bank to operate. That will give us the best possible chance to achieve these goals for the benefit of the American people. That’s always what we’re going to do, and people should have confidence in that,” Powell added.
Powell was asked by FOX Business’ Edward Lawrence about the impact of immigration policy on the unemployment rate given his comments in September that the influx of illegal immigration contributed to its rise.
“What’s happening is the flow across the border has decreased very significantly and there’s every reason to expect that to continue. And so far, job creation has come down a bit too… if those two things come down together, that can be a reason for the unemployment rate to stabilize,” Powell responded.
The chairman was also asked about the Fed’s staffing levels given Elon Musk, leader of Trump’s Department of Government Efficiency (DOGE), saying the central bank is “absurdly overstaffed.” Powell responded that the Fed runs “a very careful budget process where we’re fully aware, we owe that to the public and we believe we do that.”
Financial markets’ reaction to the Fed’s pause was largely muted given the move to hold ready steady was widely anticipated, with the S&P 500 index down about 0.4% and the Dow Jones Industrial Average down about 0.2% during afternoon trading.
Seema Shah, chief global strategist for Principal Asset Management, said that the “Fed is simply trying to respond to the data and the new administration’s policies as they unfold. At times like these, when government policy – particularly tariff policy – is so uncertain, they do not have a forecasting edge. Keeping policy rates on hold until a clear direction starts to emerge is sensible.”
“But make no mistake, if next month brings a second consecutive soft inflation print, coupled with a slight weakening in jobs growth, we may start to hear a renewed dovish tone to Fedspeak,” Shah added.
The Fed’s next meeting is scheduled for March 18 and 19 and the market’s expectations for a pause in rate cuts continuing to the next meeting was reinforced by the central bank’s announcement Wednesday.
The probability of rates remaining at the current target range of 4.25% to 4.5% through the Fed’s March meeting rose from 68.5% on Tuesday to 79.6% following Wednesday’s announcement, according to the CME FedWatch tool.
This is a developing story. Please check back for updates.
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