Original text: Jin10 Data
Just a few days ago, newly elected President Trump pressured policymakers to immediately lower interest rates. However, the Federal Reserve decided to keep rates unchanged this week, with Chairman Powell clearly stating that there is no rush to adjust rates.
Right after Powell's press conference, Trump criticized the Federal Reserve again. He wrote on Truth Social,
“Because Powell and the Federal Reserve failed to stop the inflation problem they created, I will do this by unleashing American energy production, cutting regulations, rebalancing international trade, and revitalizing American manufacturing.”
“If the Federal Reserve spent less time on DEI (Diversity, Equity, and Inclusion), gender ideology, 'green' energy, and false climate change, inflation would never be a problem.”
He did not directly comment on interest rates or Wednesday's decision. Trump has a habit of publicly expressing his views on monetary policy since his first term. To maintain the Federal Reserve's independence from political influence, U.S. presidents have historically avoided publicly sharing their views on monetary policy.
In a statement after the meeting, officials reiterated that inflation remains "a bit high," but removed the language about progress toward the 2% inflation target. Powell stated that this change was not intended to send a policy signal. Federal Reserve policymakers also updated their description of the labor market, replacing "slowing" with "strong."
During the press conference following the statement, Powell said that recent inflation data looks "good," but "we won't overinterpret two good or two bad (inflation) data points."
Earlier on Wednesday, before Trump's post, he told reporters that he would not comment on “the president's remarks about interest rates.” “The public should trust that we will continue to do our work as always.”
Powell stated that he has not had any direct contact with Trump. “A lot of research shows that (independence) is the best way for central banks to operate,” he added.
The Federal Reserve is now in a wait-and-see mode, with officials waiting for more clarity on inflation and employment data as well as the impact of Trump's policies. Market expectations for a rate cut by the Federal Reserve in 2025 are declining. According to CME's "FedWatch," the probability of the Federal Reserve keeping rates unchanged in March is 82%.
Institutional Interpretations
George Cipolloni, Portfolio Manager at Penn Capital Management:
“The latest policy statement was initially interpreted as more hawkish than expected. They will wait some time to see what happens with inflation, which may not be the worst idea in the world, as they do not want to overcorrect policy. I think they overcorrected a bit last year by cutting rates by 100 basis points.
“Thus, the Federal Reserve's policy outlook is intertwined with the inflation outlook, and now we must combine it with the new government and its new policies, some of which do seem a bit inflationary, or at least could be. Therefore, it makes sense for the Federal Reserve to remain patient in this regard. I think Trump will not like the Federal Reserve's response and tone. But for now, it feels like the right approach.”
Rusty Vanneman, Chief Investment Strategist at Orion:
“The Federal Reserve made the right decision by keeping rates stable. Inflation is still a problem, and the economy is holding steady. They are being cautious, which makes sense. For now, this provides some stability for investors as we closely monitor any changes in the future. As always, we focus on long-term developments.”
Michael Rosen, Chief Investment Officer at a Los Angeles Investment Firm:
“The bond market was sold off after the FOMC statement was released because the statement did not mention that inflation is moving toward the 2% target. It is surprising that investors were surprised by this obvious fact. Inflation has been sticky for the past 18 months, meaning it has not further declined to 2%. For the past two years, the market has incorrectly expected the Federal Reserve to significantly ease monetary policy. But in fact, investors should continue to short bonds.”
Ellen Hazen, Chief Market Strategist at F.L. Putnam Investment Management:
“The market is completely correct. If you look at federal funds futures, they have hardly changed. So I think the market correctly realizes that the impact of this meeting is neutral. The Federal Reserve's change in wording is somewhat hawkish—they no longer talk about a softening labor market but rather about stability. They also no longer talk about inflation slowing down but believe it remains high. So these two things are somewhat hawkish.
“When the Federal Reserve may have a dispute with the government, shifting to a process that relies less on data is very tricky. Now is not the time for a shift. While I do think they are hinting at this, they cannot say it publicly.”
Brian Jacobsen, Economist at Annex Wealth Management:
“The Federal Reserve seems to believe the economy is caught in a dilemma of low unemployment and high inflation. The statement can be interpreted as mildly hawkish, indicating that even a slight fluctuation in rates could help the economy escape this balance.
Matthias Scheiber, Head of Multi-Asset Solutions at Allspring Global Investments:
“We believe that the window for any future rate cuts may not open until May, and we expect the Federal Reserve to cut rates twice this year.”
“As the new government begins to implement its fiscal policy plan, we expect the Federal Reserve to remain cautious in monitoring inflation. For 2025, the rate market currently expects the Federal Reserve to lower rates to around 4% by the end of the year. This largely depends on how U.S. fiscal policy impacts inflation.”
“We continue to favor stocks, especially those that are relatively cheap, as well as stocks in international markets that benefit from central bank rate cuts and currency depreciation. We expect the stock market rally to expand and believe that any further easing of monetary policy could support stock prices in the medium term. Despite the narrowing spreads, the outlook for high-yield bonds remains optimistic, as the likelihood of a U.S. recession seems low.”
Michele Raneri, Head of U.S. Research and Consulting at TransUnion:
“Following a series of stronger-than-expected economic indicators, the Federal Reserve today opted to forgo another rate cut and instead chose to remain unchanged for the time being. This is the first FOMC meeting since July 2024 that did not result in a rate cut. How many rate cuts will occur in 2025 remains to be seen. While concerns about inflation have significantly eased, they still exist. Therefore, the magnitude of rate cuts next year is likely to be less than previously expected a few months ago. We will continue to monitor how previous rate cuts play out in the economic ecosystem.”
Michael Brown, Senior Research Strategist at Pepperstone:
“To be honest, I’m not sure whether (the Federal Reserve no longer mentioning inflation “progress” in the policy statement) will change the game, although it may suggest that policymakers want to see further anti-inflation progress before cutting rates again later this year. However, the future path of interest rates is certainly downward. Given that the Federal Reserve's start this year is almost the same as where they left off in mid-2024, the timing of rate cuts still depends on future data releases.”
Lindsay Rosner, Multi-Asset Investment Director at Goldman Sachs Asset Management:
“In the new year, the Federal Reserve has entered a ‘new phase’ of the easing cycle, with strong economic growth and resilient employment data providing room for a more patient approach amid rising data and policy uncertainty. While we still believe the Federal Reserve's easing cycle is not over, the FOMC wants to see further progress in inflation data before the next rate cut, as they removed the language indicating that inflation is making progress.”
Joseph Sroka, Chief Investment Officer at Novapoint:
“The Federal Reserve has kept rates unchanged as expected. It made it clear back in December that the pace of rate cuts in 2025 would slow. With the new government taking office and its fiscal and other policies being proposed, the Federal Reserve is now in a favorable position to respond to the complex data changes resulting from the first three to four months of the new administration.”
Jamie Cox, Managing Partner at Harris Financial Group:
“The Federal Reserve just told us there will be no rate cut in March, so all eyes are on May. The removal of the inflation progress language led some market participants to conclude that the Federal Reserve is shifting its rate preference from lower to higher—I disagree with this view. I believe the Federal Reserve removed this wording to shift the market's focus away from the inflation trajectory and onto economic growth and unemployment, both of which are in very favorable positions.”
Mark Luschini, Chief Investment Strategist at Janney Montgomery Scott:
“The fact that rates remain unchanged is not surprising. However, the removal of the inflation progress language suggests that the Federal Reserve acknowledges that inflation rates are still above their target and may be stabilizing above the target rate.”
Guy Lebas, Chief Fixed Income Strategist at Janney Montgomery Scott:
“After cumulative rate cuts of 100 basis points, the Federal Reserve has slowed the pace of rate cuts. While the direction remains toward rate cuts, the speed of that movement has slowed. Sustained strong economic growth in the fourth quarter and some slightly elevated inflation data are the culprits. Currently, a slower pace of rate cuts means that the January FOMC meeting ‘skipped’ a rate cut, and then as first-quarter inflation data approaches 2%, a cut may occur again in March. This is far from certain and depends on unpredictable short-term data, but in our view, a rate cut in March is the most likely outcome.”
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