Fed pauses rate cuts in first interest rate decision since Trump took office

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Simone Del Rosario Business Correspondent

By Simone Del Rosario (Business Correspondent), Brent Jabbour (Senior Producer), Emma Stoltzfus (Video Editor)

The Federal Reserve paused its short-lived rate-cutting cycle on Wednesday, Jan. 29, by keeping its benchmark interest rate unchanged. It’s the first interest rate decision made in 2025 and under the new Trump administration.

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The latest decision keeps the federal funds rate between 4.25% and 4.5%. The rate was above 5% for much of 2023 and 2024 as the central bank attempted to get a hold of rampant inflation brought on by the COVID-19 pandemic. The Fed’s decision comes as no surprise; it was in line with market expectations.

Probability markets are not pricing in a Fed rate cut until June, with another one possible toward the end of the year. The Fed itself in December projected two rate cuts in 2025.

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Why did the Fed pause cuts?

The central bank has a dual mandate of maintaining price stability and full employment. Lately, inflation is going in the wrong direction while the labor market holds strong.

The U.S. economy added 256,000 jobs in December, roughly 100,000 jobs more than expected. The unemployment rate ticked down to 4.1% from November’s 4.2%.

Labor market weakness is what triggered the Federal Reserve to start cutting its benchmark interest rate in September 2024. After a jumbo-sized 50-basis-point cut, the Fed made two more 25-basis-point cuts to close out the year.

Inflation rose 2.9% in 2024, according to December’s consumer price index. In the month, prices rose 0.4%, the highest monthly rise since February 2024. In November, prices rose 0.3% for the month and 2.7% annually.

It marked the third month in a row the key inflation gauge rose. It’s now at its highest point since July 2024, according to Bureau of Labor Statistics data.

President Trump calls for lower rates

This week’s decision to keep the benchmark rate unchanged is the first since President Donald Trump took office on Jan. 20. The president was critical of Federal Reserve Chair Jerome Powell during his first term in office but has said he will not try to fire him before his current term runs out in 2026.

Trump has, however, continued to criticize Fed policy and advocate for lower interest rates.

“I’ll demand that interest rates drop immediately,” Trump said during his World Economic Forum speech during the week of Jan. 20. “And likewise, they should be dropping all over the world. Interest rates should follow us.”

“I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do,” Powell said. “So the public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work and that’s how we best serve the public.”

Powell said he’s had no contact with the president, confirming the interest-rate demand was not made directly to him.

Tags: Consumer Price Index, Donald Trump, Economy, Federal Reserve, Inflation, Interest rates, Jerome Powell, Jobs, jobs report, rate cut, U.S. Economy, World Economic Forum

Donald Trump: I’ll demand that interest rates drop immediately. And likewise, they should be dropping all over the world.

Simone Del Rosario: The Federal Reserve did not meet that demand Wednesday. Instead, it paused its short-lived rate-cutting cycle.

In its first meeting since Donald Trump became president, the Federal Open Market Committee left its benchmark interest rate unchanged. The decision comes after cutting three times to close out 2024.

Jerome Powell: We know that reducing policy restraint too fast or too much could hinder progress on inflation. At the same time, producing policy restraint too slowly, or too little could unduly weaken economic activity and employment.

Simone Del Rosario: The rate sits between 4.25% and 4.50% and is in line with expectations. 99.5% believed the rate would be unchanged, according to the CME FedWatch tool.

Powell punted when asked about Trump’s claim last week that he would demand interest rates drop immediately.

Jerome Powell: I’m not going to have any response or comment whatsoever on what the President said. It’s not appropriate for me to do. So the public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work and that’s how we best serve the public.

Steve Leisman (CNBC):Can you just comment on whether you specifically communicated this demand to you.

Jerome Powell: I’ve had no contact.

Simone Del Rosario: Trump and Powell have had a tense relationship for years. Trump often criticized Powell publicly for not lowering rates during his first term. People in Trump’s camp had floated firing Powell if Trump won the election – whether he could or not is a different story. But after winning a second term, Trump said he would let Powell serve out his own, which ends in 2026.

As for how Trump’s economic policies may impact inflation and the labor market, Powell said the committee is taking a wait-and-see approach.

Jerome Powell: We don’t know what will happen with with tariffs, with immigration, with fiscal policy and with regulatory policy, we’re only just beginning to see him actually, are not really beginning to see much, and I think we need to, 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.

Simone Del Rosario: The Fed has a dual mandate of maintaining maximum employment with price stability. The Fed’s inflation target is 2%.

In December, unemployment fell to 4.1% while inflation ticked up to 2.9% for the year.

For now, the market isn’t expecting another Fed rate cut until June, with a second one possible in December.

For SAN, I’m SDR.