[Christian Harris]

The Federal Reserve has maintained its benchmark interest rate at the 4.25%-4.5% range, signalling a halt in its recent rate-cutting streak.

This decision comes after three successive rate reductions in previous meetings.

The Fed’s stance reflects growing caution about inflation’s trajectory, as it has removed language indicating progress towards its 2% target.

Despite a robust job market, with employers adding over 250,000 jobs in the previous month, inflation remains a concern.

The consumer price index rose by 2.9% in December compared to the previous year, slightly higher than the month before.

President Trump has vocally advocated for immediate rate cuts, stating he would “demand” lower rates. However, the Fed is adopting a wait-and-see approach to assess the impact of its previous rate reductions.

Impact Of The Fed’s Decision

The Fed’s cautious stance has shifted market expectations:

• Rate Cut Timeline: The next rate cut is now anticipated in June 2025, with only two cuts projected for the year.
• Market Reaction: Stock markets experienced a downturn following the announcement as investors adjusted their expectations for a more gradual easing cycle.
• Borrowing Costs: Consumers should not expect near-term relief on borrowing costs for credit cards, mortgages, and other loans.
• Savings Rates: High-yield savings accounts may maintain relatively stable rates, with some still offering above 4% returns.

The Fed’s decision reflects a delicate balance between managing inflation and supporting economic growth, while also considering potential inflationary pressures from the new administration’s policies, such as tariffs and immigration measures.

Data: eToro, Trading Economics

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