On January 29, 2025, the Federal Open Market Committee (FOMC) of the Federal Reserve concluded its two-day meeting. The committee decided to maintain the federal funds rate within the target range of 4.25% to 4.50%. This decision marks a pause after three consecutive rate cuts in previous meetings.
Economic Assessment
- Growth: Recent indicators suggest that economic activity has continued to expand at a solid pace. The gross domestic product (GDP) grew at an annualized rate of 3.1% in the third quarter of 2024. This growth reflects robust consumer spending and business investment.
- Labor Market: The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. In December 2024, the economy added 256,000 non-farm jobs, indicating continued strength in employment.
- Inflation: Inflation remains somewhat elevated, with the personal consumption expenditures (PCE) price index at 2.4%, slightly above the Federal Reserve’s 2% target. The committee remains attentive to inflation risks and aims to return inflation to its 2% objective.
Rationale for Holding Rates Steady
The decision to keep interest rates unchanged reflects the FOMC’s assessment that the current monetary policy stance is appropriate to support sustained economic expansion, strong labor market conditions, and a return to 2% inflation. The committee judges that the risks to achieving its employment and inflation goals are roughly in balance.
FOMC Meeting Policy Outlook
The FOMC emphasized a “wait and see” approach, indicating that future rate adjustments will depend on incoming data and the evolving economic outlook. The committee will continue to monitor global developments and assess their implications for the economic outlook. The Federal Reserve remains prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of its goals.
Market Reactions
Financial markets responded modestly to the Fed’s decision. Treasury yields experienced slight increases, while equity markets, including the S&P 500 and Nasdaq Composite, saw minor declines. Investors appeared to have anticipated the Fed’s pause, resulting in limited market volatility.
Political Reactions
President Donald Trump criticized the Federal Reserve’s decision to hold rates steady, expressing dissatisfaction with the central bank’s approach to managing inflation and economic growth. He argued that the Fed’s policies have contributed to economic challenges and reiterated his commitment to addressing inflation through alternative measures, such as increasing domestic energy production and reducing regulations.
Conclusion
The Federal Reserve kept rates steady, balancing growth, a stable job market, and inflation. The FOMC’s “wait and see” approach ensures data-driven decisions. It remains ready to adjust policies to maintain employment and price stability.
