The Fed Is About to Hit Pause on Rate Cuts. Here’s Why.

At the Federal Reserve’s final gathering of 2024, Chair Jerome H. Powell announced that the U.S. central bank was embarking on a “new phase” in how it would set interest rates.

The Fed planned to “move cautiously” with cuts going forward, Mr. Powell told reporters at the time, reflecting officials’ thinking that they could afford to be patient with scant signs of an impending recession and lingering inflationary pressures. On Wednesday, the Fed is set to put that approach into action, pressing pause on further reductions for the first time since they began lowering borrowing costs in September.

The question now looming large over Wall Street and Washington is just how long the Fed will be on hold.

For President Trump, who in his first week in office claimed to have a better understanding of interest rates than officials at the Fed, a pause of any length is likely to be seen as too long. Speaking to attendees at the World Economic Forum in Davos, Switzerland, he said that as his economic policies drove down the price of oil, he would “demand that interest rates drop immediately.”

But for policymakers and the economists, investors and former Fed officials who follow their actions closely, the timeline looks very different.

“There is no compelling reason to cut,” said Loretta Mester, who retired as president of the Cleveland Fed in June. “I would want to see convincing evidence that inflation has resumed moving down and right now, I don’t think we have that.”