The Federal Reserve maintained its benchmark interest rate range at 4.25-4.50% on Wednesday, pausing its recent string of rate cuts as policymakers assessed whether or not inflation is stalling to reach their target.
Key Takeaways:
- Fed kept federal funds rate target range at 4.25-4.50%
- Decision was unanimous among voting FOMC members
- Statement noted economic activity continues to expand at “solid pace”
- Committee saw risks to employment and inflation goals as “roughly in balance”
The first Federal Open Market Committee (FOMC) meeting of 2025 marked a shift from December’s easing cycle, as officials grappled with inflation that has ticked back up to around 3% after falling to 2.4% in September.
The decision to hold rates steady came amid strong economic data, with GDP growth reaching 3.1% in Q4 2024 and first-quarter 2025 growth projected at 2.3%. While the committee maintained language about carefully assessing data for “additional adjustments” to rates, their tone reflected increased uncertainty about the pace of future cuts.
Link to official FOMC Statement for January 2025
Their official statement featured a couple of changes in rhetoric when it came to inflation and employment views.
From previously citing “inflation has made progress toward the Committee’s 2 percent objective but remains somewhat elevated” they adjusted the wording to indicate “Inflation remains somewhat elevated.”
On employment, the FOMC statement now says “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid” versus previously noting “Since earlier in the year, labor market conditions have generally eased, and the unemployment rate has moved up but remains low.”
During the press conference, when asked about the likelihood of a March rate cut, Powell responded “We think disinflation continues on a broad an bumpy path, that tells me we don’t need to be in a hurry to adjust our policy stance.”
Market Reaction
U.S. Dollar vs. Major Currencies: 5-min
Overlay of USD vs. Major Currencies Chart by TradingView
Currency markets showed relatively muted reactions to the Fed’s announcement. The U.S. dollar initially strengthened during the release of the FOMC statement but gave up gains during Chair Powell’s press conference.
By session’s end, the dollar ended in the red against majority of its counterparts, except for the Japanese yen (-0.06%). USD/CAD fell below its pre-FOMC levels (-0.15%) while other commodity currencies, AUD (0.05%) and NZD (0.04%) logged marginal gains versus the U.S. currency.
