The Federal Reserve suddenly announces: Pause on interest rate cuts!
The Federal Reserve announced that it will maintain the federal funds rate range at 4.25%—4.50%. This is the first time the Federal Reserve has paused interest rate cuts since starting the easing cycle last September.
It is noteworthy that the statement released after the Federal Reserve meeting removed the wording "progress has been made toward the inflation target," which the market interpreted as being somewhat "hawkish." As a result, the three major U.S. stock indices experienced a sharp drop, with the Nasdaq down 0.51%, the S&P 500 down 0.47%, and the Dow down 0.31% at the close. Large tech stocks were mixed, with Nvidia dropping over 4%, Tesla down over 2%, Microsoft down over 1%, and ASML rising over 4%.
Subsequently, Federal Reserve Chairman Powell's comments at the press conference also signaled various policy messages. He stated that the Federal Reserve does not need to rush to adjust its monetary policy stance, and that U.S. inflation still remains somewhat high. Some commentators noted that Powell seemed to be singing a different tune from President Trump, who called for "immediate rate cuts" at the Davos forum.
In response, Trump fiercely criticized Powell and the Federal Reserve, accusing them of "failing to address the inflation problem they created" and doing "very poorly" in bank regulation, though he avoided directly commenting on the interest rate issue. This could further exacerbate the uncertainty surrounding the direction of monetary policy.
It is worth mentioning that this interest rate decision received unanimous support from all voting members of the FOMC (Federal Open Market Committee).
In fact, the market had fully anticipated the Federal Reserve's decision to pause interest rate cuts. On the eve of the meeting, the CME Group's FedWatch tool showed that traders in the interest rate market expected a greater than 99% probability that the Federal Reserve would pause rate hikes.
The statement released after the Federal Reserve emphasized that recent indicators suggest that economic activity continues to expand at a steady pace. The unemployment rate has remained low recently, the labor market remains solid, and inflation is still at relatively high levels.
This statement removed references to easing labor market supply and demand tightness and a slight increase in the unemployment rate, replacing it with: "In recent months, the unemployment rate has stabilized at a low level, and the condition of the labor market remains solid."
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