January FOMC meeting: Nothing to see here

As was widely expected, the Federal Reserve Open Market Committee (FOMC) chose to keep its benchmark rate unchanged at 4.25%-4.50% today. After having reduced policy rates by 100bps since September of last year, the Fed is seemingly pleased with the strength of the economy and requires further inflation progress before they consider additional cuts.

The current assessment

The press conference threw no surprises today. Fed Chair Jerome Powell largely stuck to the script, celebrating the continued resilience of the economy and labor market, emphasizing the importance of further inflation progress, and avoiding making any clear statements about government policy. Against this backdrop, while there remains a bias to cut rates further, the Fed is in no rush to adjust policy.

On inflation, Powell pointed to the fact that disinflation progress has stalled in recent months. While he was encouraged by the recent improvement in housing inflation, he noted that the Fed needs to see a series of soft inflation prints before they can feel a sense of confidence that inflation is trending towards the 2% target. Data dependency lives on.

There were multiple questions about President Trump’s proposed policies and how the Fed would respond. Powell abstained from providing any view, instead (quite rightfully) commenting that “we don’t know what will happen with tariffs, with immigration, with fiscal policy, with regulatory policy,” and so, “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.” Indeed, with the economy in a sturdy state, the Fed has earned the right to be patient and let policies unfold before they choose how and whether to respond.