As widely anticipated, the US Federal Reserve paused interest rate hikes today following a meeting of the Federal Open Market Committee (FOMC). The target range for the federal funds rate remains at 3.5% to 3.75%. The Fed said that economic activity has been expanding at a “solid pace” while job gains have remained low. At the same time, inflation remains somewhat elevated.
The vote to hold rates saw two dissents from the FOMC, with Stephen I. Miran and Christopher J. Waller calling for a 25 bps rate cut.
The Committee reiterated its firm commitment to supporting full employment and achieving an inflation rate of 2%. The current inflation rate, according to the Bureau of Labor Statistics, is 2.7%.
President Donald Trump has repeatedly called for the Fed to lower rates faster. He believes the Fed is moving too slowly to support economic growth. At the same time, the most recent GDP report showed robust activity of 4.4%.
Fed Chairman Jerome Powell will step down from his leadership role in May. While he may remain on the Board until 2028, most observers expect him to step down from the Fed, thus setting up a new appointment by the President. While he will certainly select someone who shares his view that rate cuts should come sooner, the Committee’s current composition may still pose a substantial hurdle to moving to cut rates faster.
DeVere CEO Nigel Green warned that the Fed’s decision not to cut rates puts the US economy at risk. Green pointed to the “growing fragility” of the US economy, with inflation concerns and consumer confidence heading lower.
“Keeping rates on hold today is a policy error that risks tightening financial conditions by default at the very moment the economy is losing momentum,” said Green
Alternative data provider Truflation challenged the Fed’s posture, as its measures indicate an inflation rate well below 2%. Currently at 1.16%. Earlier today, Truflation said that “the most consistent downtrends in January are Food and Housing, but we also see cooling in household items that had previously been rising due to tariffs, as well as in gasoline, clothing, and communications (cellular phone services).” Natural Gas is countering this due to the recent extreme weather.
Powell will participate in a press conference in a few minutes, where more information may be provided.
