The Federal Reserve decided to keep the federal funds rate at 4.25%-4.5% through its January 2025 meeting, as expected. The decision marked a pause in the rate-cutting cycle after three consecutive cuts in 2024 that totaled a full percentage point. Fed Chairman Jerome Powell reiterated that the central bank is in no rush to cut rates again, pending further progress in inflation.

Reasons Fed Holds Interest Rates

Powell cited a variety of reasons why the Fed is taking a wait-and-see approach, including significant uncertainty about President Donald Trump’s policies on immigration, tariffs, fiscal policy and regulation. These policies could shake up expectations for the economy.

Powell said, "We want those policies to be put in place before we can make a reasonable assessment of their implications for the economy." The strong performance of the U.S. economy and the stability of the labor market give the Fed room to hold off on further rate cuts. "We don't need to rush," he said.


Tensions with Trump

The Fed's decision is likely to create tensions with Trump, who during his first term often pressured the Fed to lower interest rates. After Wednesday's meeting, Trump stepped up his criticism of the U.S. central bank, saying that "Jay Powell and the Fed have failed to stop the problem they created with inflation."

Powell himself sought to dampen concerns about Trump's plans, saying that everything would be explained over time. He stressed that the U.S. economy as a whole was in a "good place" and that policymakers wanted to see further declines in inflation before cutting interest rates again.

Trump Comments On Regulations

Trump also accused the Fed of having a poor approach to banking regulation and criticized Fed Chairman Jay Powell for handling inflation, though he did not directly comment on the interest rate decision. "The Fed has done a poor job of Banking Regulation," Trump wrote on his social media site.

Deputy Oversight Chairman Michael Barr announced he will step down from his post at the end of February, avoiding a potential clash with Trump over the role.

Market attention continues to be on Trump's next steps and how they will impact economic and monetary policy under Powell's leadership.