The Federal Reserve (Fed) maintained its benchmark interest rate today, keeping the federal-funds rate target range at 4.25%-4.5%. This follows a series of rate cuts in the latter half of 2024 totalling a cumulative percentage point. The Federal Open Market Committee (FOMC) cited persistent inflation and a resilient economy as reasons for pausing the rate reductions.
The FOMC’s latest policy statement acknowledged the continued solid expansion of economic activity. It also highlighted the stabilisation of the unemployment rate at a low level, reinforcing the strength of the labour market. However, the committee expressed concern over inflation, which “remains somewhat elevated.”
This marks a subtle shift in language from the December FOMC statement. While the previous statement noted progress in slowing price growth, the current statement omits this observation, focusing solely on the persistent nature of inflation. Federal Reserve Chair Jerome Powell, however, clarified that this change in wording shouldn’t be interpreted as a significant signal.
The decision to hold the current interest rate was unanimous among FOMC members, contrasting with the single dissenting vote in the December meeting.
The committee’s statement offered limited insight into future interest rate adjustments. The FOMC emphasised its data-dependent approach, stating it will “carefully assess incoming data, the evolving outlook, and the balance of risks” when determining the extent and timing of any further adjustments to the federal funds rate. This allows the committee flexibility to respond to economic developments and policy changes leading up to its next meeting scheduled for March 17-18.
The FOMC’s decision to hold rates steady reflects a cautious approach to monetary policy in the face of ongoing inflationary pressures. While the economy remains robust, the Fed appears committed to ensuring price stability before considering further rate cuts. The market will be closely watching for any indications of the Fed’s future policy direction in the coming weeks and months.