Federal Reserve officials left interest rates unchanged in their first policy decision of 2025.
“Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated,” the Fed said Wednesday in a statement released at the conclusion of its two-day meeting.
The Fed said that it views the risks of inflation and a softer labor market to be roughly balanced. Language from past statements noting progress on bringing inflation down was dropped from the official statement.
The Fed dramatically lowered its interest rate benchmark by three-quarters of a percentage point at its September meeting and followed this up with quarter point cuts at the next two meetings in November and December, bringing its benchmark federal funds rate down from a range of 5.25 to 5.5 percent to the current target range of 4.25 to 4.50 percent.
After that rapid series of cuts, Fed officials began signaling that they would likely pause the cutting cycle to assess the state of economy. Progress on bringing down inflation has largely stalled in the past several months and the labor market looks much more solid than it did last summer.
Fed officials are also weighing how President Donald Trump’s policies will impact the economy. While tariffs are not seen by most Fed officials as posing a threat of lasting inflation, some are concerned that any price hikes caused by tariffs could lead to a rise in inflation expectations. Many Fed officials believe that rising inflation expectations can fuel a rise in inflation itself.
At the December meeting, the projections of Fed officials showed that the median expectation was for two more cuts this year. Prices of futures tied to Fed policy now suggest that investors are now expecting only a single rate cut this year.
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