Fed Keeps Interest Rates Unchanged, Monitors Economic Risks

The Federal Reserve decided to keep its benchmark interest rate at 4.25% - 4.50% during its January 29, 2025, FOMC meeting, citing solid economic growth and persistent inflation.

While the labor market remains strong and the unemployment rate is stable, inflation remains somewhat elevated, prompting the Fed to take a cautious approach.

Balancing Employment and Inflation Goals

In its statement, the Fed reaffirmed its commitment to achieving maximum employment and a long-term inflation target of 2%. Policymakers noted that the risks to these objectives are "roughly balanced," with uncertainty in both inflation and labor market trends requiring careful monitoring.

"As it considers any future rate adjustments, the Committee will carefully monitor incoming data, evolving economic conditions, and the overall balance of risks," the statement read, emphasizing a data-driven approach to future policy decisions.

Economic Uncertainty and Inflation Risks

The Fed also acknowledged growing economic uncertainty, particularly regarding the potential impact of former President Trump's policies. Trade tariffs that Trump may impose are seen as a key factor that could influence inflation in the coming months. The Fed’s reference to "economic uncertainty" highlights its focus on monitoring these developments closely.

Market Expectations for Rate Cuts

Despite the Fed's cautious stance, market expectations for rate cuts remain unchanged. Investors continue to anticipate two 25-basis point reductions in 2025, reflecting confidence that inflation will moderate enough to allow for easing later in the year.

With inflation still above target and economic growth holding firm, the Fed appears in no rush to accelerate rate cuts, opting instead for a measured approach based on evolving economic conditions.

Sources: CME - Bloomberg - Fed

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