FOMC stands pat on rates, “waiting to see” on Trump policies

It is the first meeting since July that rates have not been cut.

The Federal Open Market Committee (FOMC) made no changes to the federal funds rate on Wednesday, marking the first meeting since July that the committee has not lowered interest rates.

The committee decided to maintain the target range for the federal funds rate at 4.25% to 4.50% percent.

“Recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated,” the FOMC said in a statement.

Indeed, the inflation rate as measured by the Consumer Price Index rose to 2.9% in December, the third straight month that it increased. That is up from a recent low of 2.4% in September.

The Personal Consumption Expenditures (PCE) inflation rate has climbed over the past two months from 2.1% in September to 2.4% in November. The December PCE rate will be announced later this week.

Cuts not expected

The FOMC’s decision did not come as a surprise to the market, as the outcome was widely expected. Some 98% of interest rate traders, according to CME’s FedWatch, anticipated that the Fed would stand pat.

“The committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run,” the statement read. “The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

But there has been a lot of pressure from President Donald Trump to lower interest rates. Last week at the World Economic Forum in Davos, Switzerland, Trump made his position clear via video.

“I’ll demand that interest rates drop immediately,” Trump said, reported CNBC. “And likewise, they should be dropping all over the world. Interest rates should follow us all over.”

Fed Chair Jerome Powell was asked about the president’s recent statements in the press conference that followed, but did not comment.

Wait and see

Powell did not give any indication as to when the next rate cut might occur but added that progress on inflation or a weakening job market would be catalysts for future rate cuts.

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” the FOMC statement read. “The committee would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee’s goals. The committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments.”

But a lot depends on what policies the Trump Administration enacts, and their impacts, Powell said.

“I think the committee is very much in the mode of waiting to see what policies are enacted,” Powell said at the press conference, reported CNN. “We don’t know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. We are only just beginning to see and actually are not beginning to see much. I think 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.”

Powell added that the committee won’t be in a hurry to respond to the administration’s policies “until we see how it plays out.”

According to CME FedWatch, 79.6% of interest rate traders expect the FOMC to keep rates the same at their March meeting while 20.3% anticipate a 25 basis point reduction.