By Howard Schneider, Michael S. Derby
WASHINGTON (Reuters) -The U.S. central bank held interest rates steady on Wednesday and Federal Reserve Chair Jerome Powell said there would be no rush to cut them again until inflation and jobs data made it appropriate.
The decision and Powell’s comments put Fed policy in a holding pattern at a time when the U.S. economic landscape seems both stable and wildly uncertain – with a healthy set of macroeconomic fundamentals that have changed little in recent months, but coming decisions from the Trump administration on immigration, tariffs, taxes and other areas that could prove disruptive.
Emerging from their first policy meeting during President Donald Trump’s second term in the White House, Powell said Fed officials are “waiting to see what policies are enacted” before judging the effects on inflation, employment and overall economic activity, with no reason to adjust rates further until data either show a renewed decline in inflation or rising risks to the jobs market.
“I think our policy stance is very well-calibrated,” Powell said in a press conference after the end of the Fed’s latest two-day policy meeting. “The unemployment rate has been broadly stable for six months … The last couple of inflation readings … have suggested more positive readings.”
In comments on his Truth Social media platform, Trump did not directly call for rate cuts, as he said he would do, but attributed the inflation that spiked in 2021 in the aftermath of the COVID-19 pandemic to the Fed spending too much time “on DEI (Diversity, Equity, and Inclusion), gender ideology, ‘green’ energy, and fake climate change.”
Trump returned to power last week with promises of import tariffs, an immigration crackdown, tax cuts and looser regulation.
Powell declined to respond to the Republican president’s previous statements, but said, as he often has, that the central bank reacts to economic developments to try to maintain the lowest unemployment rate consistent with 2% annual inflation.
INFLATION ‘REMAINS ELEVATED’
After the Fed lowered rates three times in the latter part of last year, inflation has largely moved sideways in recent months, but “remains elevated,” the central bank’s policy-setting Federal Open Market Committee said in a statement after a unanimous decision to keep the benchmark overnight interest rate in the current 4.25%-4.50% range.
Recent key inflation readings remain about half a percentage point or more above the Fed’s target, far lower than the 40-year highs seen in the aftermath of the pandemic.
Fed officials say they largely believe the progress in lowering inflation will resume this year, but have now put rates on hold as they await data to confirm it.
“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,” the Fed’s statement said.
“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,” it added.
Powell told reporters “we do not need to be in a hurry to adjust our policy stance” and monetary policy is “well-positioned” for the challenges at hand. He noted there are risks to cutting rates too aggressively, saying “we know that reducing policy restraint too fast or too much could hinder progress on inflation.”
Short-term interest rate futures showed that investors expect the central bank to hold off on cutting rates again until June. U.S. stocks closed down on the day but off their lows, while U.S. bond yields were little changed. The dollar was steady against a basket of currencies.
‘MILDLY HAWKISH’
The Fed’s rate decision on Wednesday was widely anticipated following its rate cuts in 2024, which reduced the benchmark rate by a full percentage point.
There is debate at the central bank about how much further rates may need to fall, with policymakers anticipating perhaps two quarter-percentage-point rate cuts over the course of the year.
“The Fed seems to think the economy is stuck with a low unemployment rate and elevated inflation,” said Brian Jacobsen, chief economist at Annex Wealth Management. “The statement could be read to be mildly hawkish, suggesting that a little jolt to rates could kick the economy out of this equilibrium.”
Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management, said, “while we continue to think the Fed’s easing cycle has not yet run its course, the FOMC will want to see further progress in the inflation data to deliver the next rate cut, highlighted by the fact they removed the reference on inflation making progress.”
(Reporting by Howard Schneider; Additional reporting by Michael S. Derby and Ann Saphir; Writing by Howard Schneider and Dan Burns; Editing by Andrea Ricci and Paul Simao)
