Federal Open Market Committee press conference
It is the start of a new era for the Federal Reserve — in more ways than one.
After lowering its benchmark interest rate a full percentage point in the final months of 2024, the Federal Open Market Committee came into this week’s meeting all but promising to hold interest rates steady until further notice as it waits for clearer signals about the country’s economic trajectory.
“The last cut was a dicey one. As the Fed chair himself said, it was a ‘close call,'” said Rodney Ramcharan, an economics professor at the University of Southern California and a former Fed economist. “It would be very unlikely to imagine a scenario where they cut the short-term rates on Wednesday. I don’t see it happening.”
This week’s meeting decision is also the first under the new administration, which brings with it a host of new developments, including President Donald Trump’s willingness to badger the Fed into adjusting monetary policy to his liking.
While he gave no explicit directive this time, Trump has made clear that he will want “a say” in monetary considerations going forward. In a speech last week, he called for rates to be cut “immediately” in response to falling oil prices, something he said would come from upcoming negotiations with major oil-producing countries in the Middle East.
Fed Chair Jerome Powell has, to this point, shied away from opining on specific Trump agenda items — such as an increased use of tariffs, a crackdown on immigration and a reduction in federal spending — insisting that it was too soon to make assessments about policies that were up to that point hypothetical.
Some of those initiatives have begun to take shape rapidly during the past week and a half, largely through executive orders. In an analyst note, Thomas Simons, chief U.S. economist for the financial services firm Jeffries, wrote that because of these actions, Powell will likely face a litany of questions about Trump, though he does not expect the Fed chief to “take the bait.”
Instead, Simons expects the Fed to steer clear of the political fray and keep its policy options open moving forward.
“Monetary policy decisions are almost never made in advance of expected outcomes, and the experience since September shows why,” Simons wrote, referring to the FOMC’s half-point rate cut in advance of an anticipated economic downturn. “So, we expect a more dovish tone from the Fed down the road, but for today, we expect a neutral stance.”
Still, Powell said last month that the uncertainty about Trump policies weighed on some of his colleagues as they wrote down their economic expectations for the months and years ahead.
“We have people taking a bunch of different approaches to that, but some did identify policy uncertainty as one of the reasons for their writing down more uncertainty around inflation,” Powell said during last month’s post-FOMC press conference. “The point about uncertainty is it’s kind of common sense thinking that, when the path is uncertain, you go a little bit slower.”
At some point, Powell will be pressed to follow up on that remark. Whether that happens today or in March — the next meeting in which FOMC participants release their interest rate projections, known as the dot plot — remains to be seen.