Quick shot: Fed pushes pause

In their January meeting, the Federal Reserve (Fed) kept the federal funds rate unchanged, maintaining it at 4.50%. This decision follows a series of three rate reductions that began last September, which cumulatively lowered the Fed funds rate from 5.50% to 4.50%.

Why pause? Because the U.S. economy is proving to be resilient and has made “significant progress” towards the Fed’s growth and inflation goals. On the growth backdrop, Federal Reserve Chair Jerome Powell noted that the economic activity is progressing at a steady pace and the labor market has shown signs of stabilizing. Importantly, on inflation, Chair Powell noted that inflationary pressures have eased modestly over the last year and while the Fed expects further progress, inflation remains “somewhat elevated”.

Taken together, the Fed’s assessment is that the U.S. economy is in a healthy place and that they “don't need to be in a hurry” to lower interest rates. This wait and see posture also gives the Fed time to continue its efforts to carefully assess the economic impacts of potential policy changes from President Donald Trump’s administration.

We still expect that the Fed will cut interest rates over the course of this year, but the pace is likely to slow given the economy’s strength. Chair Powell emphasized that the Fed is not committed to a fixed plan and remains flexible to respond to changes in economic conditions. For investors, building resilient portfolios that can withstand the evolving market environment continues to be key.

All market and economic data as of 01/29/25 are sourced from Bloomberg Finance L.P. and FactSet unless otherwise stated.

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