The Federal Reserve announced it will maintain its benchmark interest rate in the range of 4.25% to 4.5%, marking a pause after three consecutive rate cuts in late 2024.
While the move was expected by analysts, it comes amid a backdrop of persistent inflation, which was recorded at 2.9% year-over-year in December. Despite a decrease from a peak of 9.1% in June 2022, inflationary pressures continue to be felt, particularly in sectors like gasoline, food, and housing.
In its statement, the Fed removed language referring to progress towards its 2% inflation goal, instead stating “inflation remains somewhat elevated.” This new language signals the Fed is taking a more cautious approach to cutting rates in the near term.
Nigel Green, deVere Group CEO, noted that the Fed’s decision comes as President Donald Trump advocates for lower interest rates, raising concerns about economic stability.
“The Fed’s decision to hold rates was expected, but the real story here is the renewed tension between the White House and the central bank,” Green said.
“His administration has already signaled its preference for lower interest rates, but that does not mean the Fed will, or should, comply without considering the economic consequences. Policies such as tariffs and mass deportations could further complicate the inflation outlook and force the central bank into a defensive stance.”
Green is cautious about the broader economic outlook.
“The economic landscape is fraught with risk, and while fiscal stimulus may boost short-term growth, the long-term effects could be far more destabilizing,” he said.
“Investors need to be aware that history has shown us how excessive government intervention can be a masterclass in the law of unintended consequences, particularly when it involves trade restrictions and labor market disruptions.”
Gina Bolvin, Bolvin Wealth Management Group president, added it was no surprise the Fed is on hold. "Even they have to wait and see Trump’s policies on taxes, immigration, deregulation and tariffs before they cut rates," Bolvin said.
"Stocks will continue to rely on fundamentals, and so far, so good. It’s a good start to the earnings season, and GDP growth is 3%."
US stocks traded lower following the Fed’s decision and as investors await earnings reports from tech giants Meta, Microsoft and Tesla. The Nasdaq was down 0.8%, the S&P 500 was down 0.6% and the Dow Jones fell 0.3%.
"Markets have seen a mild reaction after the announcement, with the dollar and yields moving higher, whilst stocks pulled away from their daily highs," Capital.com senior market analyst Daniela Sabin Hathorn said.
"In the midst of the current earnings season and following the shock seen earlier this week after DeepSeek entered market consciousness, the impact of the FOMC meeting was expected to be limited."