The Federal Reserve paused its short-lived rate-cutting cycle on Wednesday, Jan. 29, by keeping its benchmark interest rate unchanged. It’s the first interest rate decision made in 2025 and under the new Trump administration.
The latest decision keeps the federal funds rate between 4.25% and 4.5%. The rate was above 5% for much of 2023 and 2024 as the central bank attempted to get a hold of rampant inflation brought on by the COVID-19 pandemic. The Fed’s decision comes as no surprise; it was in line with market expectations.
Probability markets are not pricing in a Fed rate cut until June, with another one possible toward the end of the year. The Fed itself in December projected two rate cuts in 2025.
Why did the Fed pause cuts?
The central bank has a dual mandate of maintaining price stability and full employment. Lately, inflation is going in the wrong direction while the labor market holds strong.
The U.S. economy added 256,000 jobs in December, roughly 100,000 jobs more than expected. The unemployment rate ticked down to 4.1% from November’s 4.2%.
Labor market weakness is what triggered the Federal Reserve to start cutting its benchmark interest rate in September 2024. After a jumbo-sized 50-basis-point cut, the Fed made two more 25-basis-point cuts to close out the year.
Inflation rose 2.9% in 2024, according to December’s consumer price index. In the month, prices rose 0.4%, the highest monthly rise since February 2024. In November, prices rose 0.3% for the month and 2.7% annually.
It marked the third month in a row the key inflation gauge rose. It’s now at its highest point since July 2024, according to Bureau of Labor Statistics data.
President Trump calls for lower rates
This week’s decision to keep the benchmark rate unchanged is the first since President Donald Trump took office on Jan. 20. The president was critical of Federal Reserve Chair Jerome Powell during his first term in office but has said he will not try to fire him before his current term runs out in 2026.
Trump has, however, continued to criticize Fed policy and advocate for lower interest rates.
“I’ll demand that interest rates drop immediately,” Trump said during his World Economic Forum speech during the week of Jan. 20. “And likewise, they should be dropping all over the world. Interest rates should follow us.”
“I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do,” Powell said. “So the public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work and that’s how we best serve the public.”
Powell said he’s had no contact with the president, confirming the interest-rate demand was not made directly to him.
