The Federal Reserve left the interest rates unchanged on Wednesday, while the central bank became careful for further cutbacks in the midst of a solid economy and uncertainty about inflation.
The decision of the Central Bank to pause during her first meeting of 2025 followed a series of cutbacks that started in September to explain the progress that has already been made in obtaining inflation.
In the course of three meetings, the Fed reduced rates by a full percentage point to a range of 4.25 percent to 4.5 percent, which was maintained on Wednesday.
In a statement released in addition to the decision, the Fed described the labor market as 'solid', and noted that the unemployment rate 'was stabilized at a low level'.
Inflation -deliverness, however, continued to dominate, whereby the FED previously made ahead of the prospect of the inflation goal of 2 percent of the Central Bank. It stated earlier that inflation remained “somewhat raised”.
Fed officials try to find the right balance between ensuring that high inflation is completely overcome after the worst shock in decades, while also protecting the labor market to weaken excessively. Lowering the interest rates too slowly risks the endangering of jobs, while reducing interest rates risks inflation too quickly that is stuck above the purpose of 2 percent of the FED.
Fear of the labor market that originated in the summer has decreased as companies continue to hire and remain low. But the progress when taming price pressure has been bumpy in recent months. The care is that it can still be a bumper in view of President Trump's plans to dramatically reform the economic policy in the White House in his second term, including a much more liberal use of rates and massive deportations.
What is unclear is how that policy will influence inflation and growth and in turn when and through how much the Fed will be able to reduce the interest rates.
In December, civil servants reduced their predictions for tariff reductions for this year to only half a percentage point – half of what they estimate in September – while they have sharply increased their inflation projections for the year. That reflected potential policy changes from Mr Trump for some officials, FED chairman Jerome H. Powell said at the time, while others revised their prospects based on the state of the economy alone.
The key to how the FED will respond to price pressure caused by rates, for example, is how expectations of consumers and companies about future inflation shift as a result. The central bank turned out to be more concerned about the potential hit for the growth caused by trade tensions during the first term of Mr Trump – so much even that it reduced interest rates – but that was consistently lower than the purpose of His goal, as it is today.
Mr Trump's highest economic advisers, including the newly confirmed Minister of Finance Scott Bessent, have reduced the idea that rates will cause higher consumer prices on the basis of the fact that increased costs for American importers would be partially compensated by a stronger dollar. Mr Bessent also expects foreign manufacturers to lower prices to stay competitive with American companies, which would further insulate consumers.
Mr. Trump has made Splashing inflation into a central pillar of his economic agenda and said last week that if his policy lower oil prices, he “would require the interest rates to fall immediately”.
Mr. Trump repeatedly attacked Mr Powell during his first term because he did not lower the interest rates quickly enough. At one point he wondered if the FED chair was a “bigger enemy” for the US than Chinese President Xi Jinping.
During a New York Times event in December, Mr Powell said that he “did not worry” about the Fed that maintained her political independence.
