The Federal Reserve has paused interest rates cuts, and kept interest rates the same

Federal Reserve Holds Interest Rates Steady in First 2025 Decision

The Federal Reserve kept its benchmark interest rate unchanged on Wednesday, Jan. 29, marking the first rate decision of 2025 and the first under the new Trump administration.

The decision leaves the federal funds rate at 4.25% to 4.5%, following a period of higher rates in 2023 and 2024, when the Fed aimed to curb post-pandemic inflation. Markets widely expected the pause.

Rate Cut Expectations
Probability markets suggest the Fed won’t cut rates until June, with a potential second cut later in the year. The Fed’s December projections indicated two rate cuts in 2025.

Why Did the Fed Pause Rate Cuts?

The Fed operates under a dual mandate: ensuring price stability while supporting full employment. Currently, inflation is rising, while the job market remains strong.

• December’s jobs report showed 256,000 new jobs, far exceeding forecasts by 100,000.
• The unemployment rate dipped to 4.1%, down from 4.2% in November.

The Fed first cut rates in September 2024 due to labor market concerns, making a 50-basis-point reduction, followed by two smaller 25-basis-point cuts to end the year.

However, inflation remains a challenge:

• Consumer prices rose 2.9% in 2024.
• December saw a 0.4% monthly increase, the highest since February 2024.
• November inflation rose 0.3% monthly and 2.7% annually.
• This marks the third consecutive monthly increase, with inflation now at its highest level since July 2024, according to Bureau of Labor Statistics data.

Trump Pressures Fed for Lower Rates

This rate decision is the first since Donald Trump took office on Jan. 20. During his first presidency, Trump was highly critical of Fed Chair Jerome Powell, though he has stated he will not remove Powell before his term ends in 2026.

Despite pressure for lower rates, the Fed appears to be taking a cautious approach, balancing inflation concerns with economic stability.