The Federal Reserve on Wednesday kept interest rates unchanged after its first meeting of the year – ignoring President Trump’s calls for rates to “drop immediately.”
“The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate,” the Fed said in a note.
Investors had largely expected the Fed to press pause on its easing campaign after slashing interest rates by a full percentage point last year, starting with an outsize half-point cut in September, which was the first cut in four years.
Fed Chair Jerome Powell last month also hinted at caution when he said policymakers needed more confidence that inflation was cooling.
The Federal Open Market Committee’s meeting on Wednesday is the first of the year and the first under the Trump administration, and all eyes are on Powell as he faces pressure from the president, who last week claimed to know “interest rates much better than they do.”
“I think I know it [interest rates] certainly much better than the one who’s primarily in charge of making that decision,” Trump said last week in an apparent dig at Powell. “If I disagree, I will let it be known.”
When asked if he thought Fed officials would listen to him, Trump replied: “Yeah.”
Just hours before, Trump gave a video address at the World Economic Forum in Davos, Switzerland, during which he called for an immediate drop in interest rates.
Trump appointed Powell as chairman during his first presidential term in 2017 – but repeatedly criticized him and the central bank for not easing monetary policy quickly enough.
During his first term, Trump called Powell and his Fed colleagues “boneheads” for not lowering interest rates.
“President Trump has already been very vocal about his desire for rates to come down, and we expect Jerome Powell to tread carefully about political pressure and rates,” David Laut, chief investment officer at Abound Financial, said in a note before the meeting.
Meanwhile, Trump’s policies and their potential impact on the economy are in the forefront as the president has started to move forward on his tariff and deportation promises.
Economists have expressed concern that harsh tariffs could reheat inflation, making it more difficult for the Fed to justify further rate cuts.
“President Trump is working fast to implement many of his desired policies and campaign promises. So far, there has been little, if any, impact,” Melissa Cohn, regional vice president at William Raveis Mortgage, said in a note.
“It will take time to see how everything plays out in Washington and how the new policies impact inflation and the economy,” she added.
The Fed’s decision was widely anticipated – some 99.5% of investors expected interest rates to remain unchanged ahead of Wednesday’s meeting, according to CME’s FedWatch tool.
Inflation has remained stubbornly above the Fed’s 2% goal, though it has cooled significantly to 2.9% as of December compared to pandemic-era peaks.
Unemployment ticked down to 4.1% in December from 4.2% the month before.
Prior to December’s meeting, policymakers had hinted at a possible four rate cuts in 2025 – but now it’s up in the air whether the central bank will lower rates at all this year.
“The big question for the Fed is if rate cuts are even on the table at all for 2025, as it’s difficult to argue that rate cuts are needed when the labor market is strong and inflation is still sticky,” Laut said.
In December, Powell said it has “been a bit frustrating” that inflation is taking longer to cool than expected, though he added the economy has performed better on unemployment and inflation than many people would have thought just a few years ago.
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