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Fed hold rates steady, sees inflation as ‘elevated,’ as Powell declines comment on Trump - AP News

📉 The Federal Reserve held its benchmark interest rate unchanged at 4.3%, following three consecutive cuts in the previous year.

📊 Economic indicators remain mixed, with a solid job market and unemployment stabilizing at a low 4.1%.

🔥 Inflation remains somewhat elevated, with core prices rising 2.8% annually excluding volatile food and energy categories.

⚖️ Fed Chair Jerome Powell adopted a cautious approach, stating the economy is strong enough to avoid hurrying policy adjustments.

🏛️ Policymakers are waiting for clarity on President Trump's proposed policies, including tariffs and tax cuts, before assessing economic impact.

💬 Powell declined to comment directly on President Trump’s requests for lower rates or his comments on oil prices.

📉 Analysts now expect the Fed may not cut rates again until the middle of the year despite signals from December.

🌱 Chair Powell announced the Fed is leaving the Network for Greening the Financial System due to mission misalignment.

⚡ Trump criticized the Fed in a Truth Social post for failing to curb inflation, promising to act through executive orders.

📉 Global central banks are diverging, with the ECB and Bank of Canada expected to cut rates while Japan raises theirs.

🔍 The Fed noted that real progress on inflation or labor market weakness must occur before considering further cuts.

🏢 Federal Reserve officials emphasized they need policies enacted before making plausible assessments of economic implications.

💰 Goldman Sachs economists now believe rate cuts will not occur until June and December of this year.

🔄 Powell stated the Fed is working to align policies with executive orders consistent with applicable law during his news conference.

📉 Previous concern over a weakening job market led to an outsized half-point rate cut in September last month.

Bullish Signals
  • Job market remains robust with unemployment stabilized at a low 4.1% and economic growth topping 3% annually in the fall.
  • Fed reduced benchmark interest rate to 4.3% from 5.3% last year, demonstrating progress toward cooling inflation while maintaining economic stability.
Risk Factors
  • The Federal Reserve kept rates unchanged despite cutting them three times last year, signaling a more cautious approach that could delay further cuts until as late as June or December this year.
  • Inflation remains 'somewhat elevated' at 2.8% for core prices excluding food and energy, meaning the Fed will likely not cut rates again until real progress on inflation is made.
  • Fed Chair Jerome Powell stated policymakers are 'waiting to see which policies are enacted' regarding Trump's proposed tariffs, immigration, tax cuts, and deregulation, creating uncertainty about future economic impacts.
  • President Trump criticized the Fed for failing to curb inflation and claimed he would lower rates himself, adding political pressure that could undermine the Fed's independence.
  • The Fed reduced its rate to 4.3% from 5.3% last year after job market weakening, but recent data shows hiring rebounded and unemployment declined slightly to 4.1%, suggesting a tighter labor market than previously feared.
  • Powell said the economy is 'mostly healthy' with growth topping 3% annually, which means there is no need to hurry with rate adjustments according to his policy stance.
  • The Fed is waiting for weakness in the labor market or real progress on inflation before considering further cuts, which could leave interest rates higher for longer than market expectations.
Full Analysis
The Federal Reserve held its benchmark interest rate unchanged on Wednesday, marking a shift to a more cautious strategy as officials weigh the current trajectory of inflation and potential economic policies under President Donald Trump. In a statement released following the January 29 meeting of the Federal Open Market Committee, the Fed characterized the job market as solid, noting that unemployment has stabilized at a low level, while describing inflation as remaining somewhat elevated. This assessment contrasts with previous actions where the central bank cut rates three times last year to address weakening hiring trends; however, recent data shows growth exceeding 3% annually in the fall and unemployment dropping slightly to 4.1%. During his news conference, Federal Reserve Chairman Jerome Powell declined to comment directly on President Trump's suggestion that he would lower oil prices and demand lower interest rates, stating he has had no contact with the president regarding the matter. When asked about the potential economic impact of policy changes proposed by Trump, including tariffs, tax cuts, and deregulation, Powell indicated that policymakers are waiting to see which specific policies are enacted before assessing their implications for inflation and growth. He emphasized that without further progress on bringing down core prices or signs of weakness in the labor market, there is no need to hurry adjusting the policy stance, effectively pausing the pace of rate cuts previously anticipated for later this year. Market analysts and economists have interpreted these comments as signaling a wait-and-see approach, with Kathy Bostjancic from Nationwide Financial suggesting the Fed will likely not cut rates again until the middle of the year. While most other developed central banks are expected to reduce borrowing costs soon, including the European Central Bank and the Bank of Canada, the Fed's cautious stance persists despite inflation falling to 2.4% last December according to its preferred measure. Additionally, during the event, Powell addressed administrative actions regarding the Network for Greening the Financial System, stating that its expanded goals on biodiversity are no longer a good fit for the Fed's current mandate, and reaffirmed the agency's commitment to aligning operations with new executive orders consistent with applicable law.