Fed Holds Interest Rates: What Small Businesses Can Expect In The 1st Quarter Of 2025

The Federal Reserve’s Federal Open Market Committee (FOMC) has decided to maintain the target range for the federal funds rate at 4 ¼ to 4 ½ percent. Fed Chair Jerome Powell said on Wednesday, Jan. 29, that in considering the extent and timing of additional adjustments to the target range for the federal funds rate, the FOMC carefully assesses incoming data, the evolving economic outlook, and the balance of risks. The Fed’s monetary policy decisions are made to support its dual goals of maximum employment and returning inflation to its 2% objective. Of concern to entrepreneurs: the impact of high interest rates on small businesses.

Powell said that recent indicators suggest that economic activity has continued to expand at a solid pace. The unemployment rate has stabilized and remains low, and labor market conditions remain solid. However, inflation remains above the Fed’s 2% target rate, which is one of the reasons that the FOMC did not lower rates at this meeting. The decision did not come as a shock to many economic experts.

Nonetheless, already there is a clash with President Trump, who believes interest rates are “far too high.” On his Truth Social platform, Trump went on the attack:

Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing, but I will do much more than stopping Inflation, I will make our Country financially, and otherwise, powerful again!

The Fed has done a terrible job on Bank Regulation. Treasury is going to lead the effort to cut unnecessary. Regulation and will unleash lending for all American people and businesses. If the Fed had spent less time on DEI, gender ideology, “green” energy, and fake climate change, Inflation would never have been a problem. Instead, we suffered from the worst Inflation in the History of our Country!

Trump will likely keep the pressure on the Fed to lower rates. It seems like a long time ago when he appointed Powell to be the Fed Chair. He has often criticized Powell, with speculation growing in 2024 on whether Trump could or would fire him. Trump has made it clear that he supports lowering interest rates and loosening monetary policy.

In assessing the appropriate policy, the FOMC will continue to monitor developments in the economy. Powell said that the Committee is prepared to adjust the stance of monetary policy as appropriate to reach the Fed’s dual goals of maximum employment and 2% inflation.

Shortly after the FOMC’s decision to hold the federal funds rate flat was announced, U.S. House Ways and Means Committee Chair Jason Smith (R, MO-08) issued the following statement:

President Trump’s policies are the right ones to grow paychecks and lower prices for families – and that includes extending the Trump tax cuts. That’s why Congress needs to quickly pass, in President Trump’s words, one, big, beautiful bill to grow the economy and lower prices and interest rates for hard-working families.

In order to invest, expand, and grow, small businesses need certainty that their tax rate will not be 43% in just a few months. Congress must work quickly to provide Main Street job creators with the confidence they need to borrow capital, invest in their communities, and hire American workers. Extending and building on the Trump tax cuts will bring America into a new golden era – sparking $284 billion in manufacturing growth, more than 1 million new jobs from small businesses every year, $150 billion in growth from a small business boom, and $50 billion in new investment and new life in America’s poorest neighborhoods.

Smith said that the top federal tax rate will Increase to 43.4% for 26 million small businesses if Congress fails to act and allows the Section 199A Small Business Deduction to expire.

“The 2017 Trump tax cuts provided a 20% small business tax deduction (Section 199A) that helped Main Street shops across the nation to compete with larger companies and empowered job creators by giving them the resources to invest in their businesses and their workers,” Smith said.

Impact Of High Interest Rates On Small Businesses

The biggest takeaway from the Jan. 29 FOMC meeting for small business owners is the speed at which the interest rates will go down in 2025 will be a lot less then 2024. Companies looking for lower rates on small business loans will have to wait for them to go down. There are three reasons for that. First, obviously, the Fed is in a wait-and-watch mode regarding inflation to see where it goes. Second is nobody really knows yet what impact Trump’s policies will have on inflation, especially with tariffs coming in. Putting tariffs on incoming goods is likely going to raise the prices of those goods for American consumers. The third thing is that heightened geopolitical issues can impact the overall macroeconomic condition.

Related: Will Donald Trump’s Proposed Tariffs Help Or Hurt Small Businesses?

As long as inflation remains above the Fed’s target 2% rate, the less likely it is that the central bank will lower interest rates because doing so could increase spending and will possibly send inflation higher. The problem is that Donald Trump ran on a platform that stated he would bring prices down. Until that happens, we may not see another rate cut, which means a higher cost of capital for businesses that want to borrow and grow their operations. This could be the start of a rough first quarter in 2025 for small business owners.

The next FOMC meeting is scheduled for March 18-19, 2025. Certainly, a lot could happen over the next month and a half, especially because of Trump’s fast and furious pace in his first week back in office. It may be a test of wills between the President, who is urging lower interest rates, and Powell, who says he will stick to the monetary policy that will help the Fed reach its twin goals of maximum employment at 2% interest.

Related: Trump Lashes Out At Jerome Powell After Fed Doesn’t Cut

Fed Chair Powell’s term is set to end in May 2026, and it is not clear whether the President has to ability to fire him or not. If Powell resists lowering interest rates at the next meeting, it is likely Trump will turn up the heat to get what he wants.