Fed Holds Steady on Rates, Awaiting Clarity from Trump

The US Federal Reserve held interest rates steady on Wednesday, as reported by Reuters, and Chair Jerome Powell indicated that further cuts are unlikely until there's greater clarity on the economic impact of the Trump administration's policies.

The decision and Powell's comments create a holding pattern for Fed policy, given the current economic landscape. While macroeconomic fundamentals remain generally healthy, the potential for disruption from upcoming Trump administration decisions on immigration, tariffs, taxes, and other areas creates uncertainty.

Emerging from their first policy meeting under President Trump's second term, Powell explained that Fed officials are "waiting to see what policies are enacted" before assessing the effects on inflation, employment, and overall economic activity. He asserted that there's no reason to adjust rates further until data either signals a renewed decline in inflation or rising risks to the jobs market.

"I think our policy stance is very well-calibrated," Powell stated in a press conference following the Fed's latest two-day policy meeting. "The unemployment rate has been broadly stable for six months...The last couple of inflation readings...have suggested more positive readings."

While Trump, in comments on his Truth Social platform, didn't directly call for rate cuts, he attributed the inflation spike in 2021 to the Fed's focus on "DEI (Diversity, Equity, and Inclusion), gender ideology, 'green' energy, and fake climate change."

Trump's return to power last week has been marked by promises of import tariffs, an immigration crackdown, tax cuts, and looser regulations. Powell declined to respond directly to the Republican president's previous statements but reiterated the Fed's commitment to reacting to economic developments to maintain the lowest unemployment rate consistent with 2% annual inflation.

The Fed's decision to hold rates steady was widely anticipated following the rate cuts of 2024, which reduced the benchmark rate by a full percentage point. Debate continues within the central bank regarding how much further rates need to fall, with policymakers potentially anticipating two quarter-percentage-point rate cuts throughout the year.

"The Fed seems to think the economy is stuck with a low unemployment rate and elevated inflation," said Brian Jacobsen, chief economist at Annex Wealth Management, to Reuters. "The statement could be read to be mildly hawkish, suggesting that a little jolt to rates could kick the economy out of this equilibrium."

Lindsay Rosner, head of multi-sector fixed-income investing at Goldman Sachs Asset Management, added that while they still believe the Fed's easing cycle isn't finished, the FOMC will require further progress in inflation data before enacting the next rate cut. This is highlighted by the removal of references to inflation making progress in the official statement.