Last week, the Federal Reserve held the federal funds rate steady at 3.5-3.75% in a 10-2 vote, breaking a three-meeting cutting streak. Governor’s Stephen Miran and Christopher Waller dissented, arguing for a 25 basis point rate cut. With Chair Powell's term ending in May, there is growing belief that the Fed may not adjust interest rates until the second half of 2026.
During his press conference, Jerome Powell pointed to improvements in the economy since December’s meeting as to why the Fed left rates unchanged. Growth is accelerating and the labor market shows signs of stabilizing with unemployment at 4.4%. The FOMC even dropped previous language about "increased downside risks to employment.” On inflation, the story has improved despite CPI running at 2.7% in December, above the Fed’s 2% target. Many of the price increases stem from tariffs, which Powell expects will only lead to one-time price increases rather than sustained inflation. Also, during the press conference, Jerome Powell was asked questions regarding central bank independence and a weakening dollar; however, he declined to comment on the matters, stating, “I have nothing for you on that.”
Markets are currently pricing in roughly 60% odds of two quarter-point cuts this year, but not before June when Powell's chairmanship ends. With the economic data improving and a new Fed chair likely coming in May, the window for cuts under Powell's leadership may be closing.
Sources: CNBC, Bloomberg, FOMC Press Conference
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