The Federal Open Market Committee (FOMC) opted to maintain the federal funds rate unchanged on Wednesday, marking the first instance since July that the committee refrained from lowering interest rates. This decision was in line with market expectations, as 98% of interest rate traders anticipated no change, according to CME's FedWatch. The FOMC retained the target range for the federal funds rate at 4.25% to 4.50%, citing stable unemployment rates and solid labor market conditions as key factors in its assessment.
Inflation continues to be a focal point for the FOMC, with recent data indicating an upward trend. The Personal Consumption Expenditures (PCE) inflation rate has increased from 2.1% in September to 2.4% in November. Concurrently, the Consumer Price Index recorded a rise to 2.9% in December, marking the third consecutive month of inflation growth. Despite these figures, the FOMC believes that the risks to achieving its employment and inflation goals are balanced.
“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” – FOMC statement
The committee remains vigilant of potential risks that might affect its dual mandate of maximum employment and stable inflation. The economic outlook is uncertain, prompting the FOMC to stay attentive to developments that could necessitate a policy adjustment.
“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” – FOMC statement
President Donald Trump has been exerting pressure on the Federal Reserve to lower interest rates, expressing his demands for immediate action on multiple occasions. However, Fed Chair Jerome Powell emphasized that the committee would proceed cautiously in response to administrative policies.
“I’ll demand that interest rates drop immediately,” – Donald Trump
“I think the committee is very much in the mode of waiting to see what policies are enacted,” – Jerome Powell
The FOMC's decision to hold rates steady reflects its cautious approach amidst varying economic indicators. While inflation shows signs of increase, the labor market remains robust, providing some assurance about economic stability. The committee remains open to adjusting its monetary policy stance if necessary, highlighting its commitment to its objectives.
“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.” – FOMC statement
Looking ahead, interest rate traders exhibit confidence that rates will remain unchanged at the FOMC's March meeting, with CME FedWatch showing 79.6% of traders holding this view. Meanwhile, 20.3% anticipate a minor reduction of 25 basis points.