Benchmark Rate Held at 4.25-4.5% Per Annum
First Pause After Three Consecutive Cuts Since Last September
Phrase "Progress on Inflation" Removed
The U.S. Federal Reserve (Fed) has kept the benchmark interest rate unchanged at 4.25-4.5% per annum as expected. Despite President Donald Trump publicly pressuring for a rate cut last week, the Fed has begun to slow the pace of monetary easing as previously announced.
On the 29th (local time), following the first Federal Open Market Committee (FOMC) regular meeting of the year, the Fed announced in its policy statement that it had unanimously decided to keep the federal funds rate at the current 4.25-4.5% per annum.
Previously, the Fed initiated a monetary easing cycle by lowering the rate from 5.25-5.5% in September last year by 0.5 percentage points for the first time in two and a half years. It then cut rates by an additional 0.25 percentage points in both November and December, marking three consecutive cuts before this first pause. As a result, the interest rate gap with South Korea remained at 1.5 percentage points at the upper bound.
In the policy statement, the Fed assessed that "economic activity continues to expand at a solid pace," and that "the unemployment rate has remained low in recent months, and labor market conditions remain solid." In December last year, the labor market was described as having "generally eased since early this year," but this time the wording was changed to "remain solid."
Regarding inflation, the Fed described it as "somewhat elevated." The previous phrase stating "progress has been made toward the 2% target" was removed.
The Fed stated, "The Committee seeks to achieve maximum employment and 2% inflation over the longer run," adding, "The economic outlook is uncertain, and the Committee is attentive to risks to both sides of its dual mandate." It further emphasized, "The Committee will continue to monitor incoming information and is prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals."
The Fed also announced it will continue to reduce its holdings of Treasury securities and mortgage-backed securities.
This rate-hold decision came amid pressure from President Trump, who took office on the 20th. On the 23rd, his fourth day in office, during a virtual speech at the World Economic Forum (WEF) in Davos, Switzerland, President Trump said he would "demand an immediate rate cut" from the Fed and stated that "interest rates should come down globally."
The market is awaiting a press conference by Fed Chair Jerome Powell at 2:30 p.m. Eastern Time on the same day. Chair Powell is expected to explain the reasons behind the rate hold and the future path of interest rates. How he responds to the White House’s attempts at monetary intervention will be a key point of interest.
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