The Federal Reserve kept interest rates unchanged for a fourth consecutive meeting. The decision to leave the target range for the federal funds rate unchanged at a 22-year high between 5.25% and 5.5% was unanimous. The central bank also reiterated its intention to continue reducing its monthly balance sheet by up to $95 billion.
The FOMC also showed no hurry to cut rates, noting that it “did not expect it to be appropriate to cut the target range until it has more confidence that inflation is moving sustainably towards 2%.”

Powell reinforced this message by saying, “Based on today’s meeting, I would tell you I don’t think it’s likely that the committee will have the confidence level by the March meeting.”
While Powell acknowledged the decrease in inflation in recent months, he repeatedly stressed the need to see more data confirming this downward trend. He added, “We believe our policy rate has likely reached its peak for this tightening cycle, and if the economy generally evolves as we expect, it will probably be appropriate to begin reducing policy rigour at some point this year.” However, “We are prepared to maintain the current target range for the federal funds rate longer if appropriate.”

Investors have reduced the likelihood of a rate cut in March. Goldman Sachs economists have pushed their first-rate cut forecasts from March to May while maintaining their call for five cuts this year and three more in 2025. The Fed still needs to change its stance, and investor optimism remains unshaken.

In their post-meeting statement, policymakers refined their description of economic activity. After stronger-than-expected economic growth in the fourth quarter, the committee described activity as “expanding at a solid pace.”
Among other changes in the statement, the committee omitted terms that had been included in one form or another since March, describing the banking system as “healthy and resilient” and warning that stricter credit conditions could weigh on the economy. Overall, the economy performed better than policymakers expected last year.
Inflation dropped significantly, with the Fed’s preferred measure ending the year at 2.6%. The economy grew faster, with GDP rising by 2.5%. And the labour market strengthened, with an unemployment rate of 3.7% in December.

The FOMC also took advantage of its first meeting of the year to reaffirm its long-term goals and monetary policy strategy, including its commitment to a 2% average inflation target.
With strong economic activity and labour markets and inflation gradually coming down to 2%, I see no reason for the Fed to act quickly.
The Fed is attempting to achieve something it has only succeeded once in its over 100-year history: controlling inflation through credit tightening without plunging the United States into a recession.
Moreover, it is trying to accomplish this task during a presidential election year in a deeply politically divided country and a high-risk international environment. The path to a rate cut could be smoother and certainly not guaranteed.