Federal Reserve Chair Jerome Powell said officials are not in a rush to lower interest rates, adding the central bank is pausing to see further progress on inflation following a string of rate reductions last year.
“We do not need to be in a hurry to adjust our policy stance,” Powell said Wednesday, noting that the economy remains strong and interest rates are no longer restraining the economy as much as they had been.
The Federal Open Market Committee voted unanimously to keep the federal funds rate in a range of 4.25%-4.5%, after lowering rates by a full percentage point in the final months of 2024.
Strong economic growth coupled with a solid labor market allows officials to wait for further evidence of cooling inflation before adjusting rates again. It also offers them time to evaluate how President Donald Trump‘s policies on immigration, tariffs and taxes may impact the economy.
“The committee is very much in the mode of waiting to see what policies are enacted,” Powell said. “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.”
When asked specifically about the potential for cutting rates at the Fed’s next meeting in March, Powell reiterated policymakers are not in a rush to lower borrowing costs. He stressed that the Fed wants to see “serial readings” suggesting further progress on inflation.
Taken together with comments from other officials in recent weeks, the remarks indicate the Fed could remain on hold for some time.
The Fed’s latest decision came just over a week after Trump’s inauguration. Trump, a frequent critic of the central bank, has already suggested he understands interest rates better than Powell. The Fed chief told reporters he had not been in touch with the president and declined to comment on recent remarks Trump has made on rates.
In a post-meeting statement, officials repeated that inflation remains “somewhat elevated” but removed a reference to it having made progress toward their 2% goal — a change Powell said wasn’t meant to send a policy signal. Fed policymakers also updated their description of the labor market.
“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” according to the statement.
Officials also reiterated that the risks to their inflation and employment goals are “roughly in balance” and that the “extent and timing” of additional rate adjustments will depend on incoming data and the outlook.
Neutral Rate
Fed officials want to keep some downward pressure on the economy to ensure inflation cools to their 2% target, but a key question for policymakers right now is just how much interest rates are currently restraining activity.
Powell said he believes policy is meaningfully but not highly restrictive, adding rates are “meaningfully above” the so-called neutral rate, a stance of policy that neither dampens nor stimulates growth. Officials have repeatedly revised up their estimates of this rate over the past year amid stronger-than-expected economic activity and robust productivity growth.
Last month, Fed officials signaled they expect just two rate cuts for all of 2025, a shallower path of reductions than previously anticipated. Policymakers will update their projections on the economy and rates at their next meeting in March.
This month’s pause in rate cuts comes amid increasing uncertainty about how inflation will evolve.
While progress toward the central bank’s inflation goal stalled in the last few months of 2024, the new year has brought signs that the downward trend may soon resume.
Inflation Data
Data published earlier this month showed an underlying measure of consumer prices rose by less than expected in December, marking the first stepdown in six months. That and other data have driven economists to estimate that figures due Friday will show the core personal consumption expenditures price index, which excludes food and energy, rose just 0.2% last month.
At the same time, Trump’s tariff threats are injecting uncertainty into the outlook, with some economists warning they’ll be inflationary and others — including Fed Governor Christopher Waller — arguing the impact on inflation will generally be small and short lived.
In December, Powell said some Fed officials had started incorporating potential government policies into their economic projections. Minutes from that gathering showed “almost all” participants noted the upside risks to the inflation outlook had increased, in part due to potential changes in trade and immigration policy.
Four regional Fed bank presidents rotated into voting positions on the central bank’s rate-setting committee at this week’s meeting. Chicago Fed President Austan Goolsbee, Boston Fed chief Susan Collins, Alberto Musalem of the St. Louis Fed and Kansas City Fed President Jeff Schmid will vote on policy in 2025, alongside their seven colleagues on the Board of Governors and New York Fed President John Williams.
The Fed maintained the monthly cap on the amount of Treasuries it allows to mature each month without being reinvested at $25 billion, while keeping the cap for mortgage-backed securities unchanged at $35 billion.
