February 3, 2025—In the press conference following the Federal Open Market Committee’s January 29th meeting, Fed Chair Jerome Powell stated the committee’s intent to keep the target range of the Federal Funds rate between 4.25 to 4.5 percent following their lowering the policy rate over the three consecutive previous meetings. He suggested that, despite economic and political pressure, their policy stance—and the current rates—are well-positioned to satisfy the Committee’s dual mandate to promote maximum employment and price stability.
The economic pressure is that inflation improvements seen in 2023 and early 2024 have stalled in the last few months and are still not approaching the FOMC target of 2.00%. On Friday, January 31, the personal consumption expenditure (PCE) index rose 2.6% for December, up from the 2.4% seen in November. While as recently as a few months ago, the rate cutting cycle was widely expected to continue in 2025, Powell said that the Fed is content to sit tight at the next meeting in March, should the situation remain the same. “We don’t need to be in a hurry to adjust our policy stance,” Powell said.
The Fed is also facing some political pressure. Although he stated at a virtual session for the World Economic Forum earlier last month that he would “demand” lower interest rates, in remarks to reporters days after the FOMC meeting, President Trump said, “I think holding the rates at this point was the right thing to do.” Many respected economists were left wondering if the President’s seeming change in position reflects a larger shift in his view of the central bank and U.S. monetary policy.
Some Fed officials have expressed concern about the effect of current administrative policies. The rollout of tariffs on foreign goods—notably on imports from China, Canada, and Mexico*—could significantly impact inflation. Some leading economists also suggest that new immigration policies may make it more difficult for industries to produce and transport goods adding to pricing pressures. In his remarks, however, Chair Powell said that it was not his job to comment on policy specific trade policy decisions and that there is no data yet on the impact of changing immigration policy on labor markets, only anecdotal reports.
Powell added, “And I think we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be. So, we’re going to be watching carefully.”
*As of the date of publication, tariffs on both Canadian and Mexican goods are on hold.