The Federal Reserve announced on Wednesday afternoon after its January meeting concluded that it would hold off on making a new cut in the interest rate, after stunning investors in September 2024 with a full half a percentage point cut. More recently, however, Chairman Jerome Powell and company made several, more modest, downward moves in November and December.
It also followed a dismal farewell in the form of December’s Consumer Price Index (CPI) report from the Biden Labor Department, as we wrote.
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Here’s more on the announcement, from CBS News MoneyWatch’s report (linked above):
Borrowers hoping for more financial relief from the Federal Reserve may have a wait on their hands, as the central bank is hit the pause button on additional rate cuts at its Jan. 29 meeting.
The Fed held its benchmark rate steady on Wednesday at its current range between 4.25% to 4.5%, a move that was forecast by a majority of economists polled by FactSet. Most economists also predict the Fed will hold off on cutting at its March 19 meeting, which means the next rate cut might not occur until the central bank’s May 7 meeting, FactSet data shows.
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But in December, the Fed had signaled that it expected fewer cuts in 2025 than it had earlier projected, with Fed Chair Jerome Powell pointing to inflation that remains above the central bank’s goal of an annual 2% rate.
According to CBS MoneyWatch, here’s a possible reason they chose to hold back on new rate cuts, and might continue to for months. Erasmus Kersting, a professor of economics at Villanova University, said:
“The reason why the Fed isn’t jumping the gun at lowering the rates faster and further is that, on one hand, inflation is not gone. They looked carefully at the data, and it is still stubbornly above target, so there is concern if you lower rates further, inflation would tick up again.
“Tariffs or mass deportations are expected to be inflationary. For that reason, the Fed is also right to be careful about lowering rates.”
Unsurprisingly, President Trump went off-leash in his reaction to the news, which he shared on his Truth Social account:
Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing, but I will do much more than stopping Inflation, I will make our Country financially, and otherwise, powerful again! The Fed has done a terrible job on Bank Regulation. Treasury is going to lead the effort to cut unnecessary Regulation, and will unleash lending for all American people and businesses. If the Fed had spent less time on DEI, gender ideology, “green” energy, and fake climate change, Inflation would never have been a problem. Instead, we suffered from the worst Inflation in the History of our Country!
The Fed’s failure to read the room comes amid a marathon of new Trump administration activity across just over a week in office, including the U.S. Senate’s approval on Tuesday of Treasury Secretary nominee, Scott Bessent.
We’ll keep you posted.
