The US Federal Reserve held US interest rates steady on Wednesday as firmer inflation expectations and uncertainty over the implications of President Donald Trump's agenda cast uncertainty over the central bank's future policy decisions.
Wednesday's decision by the rate-setting Federal Open Market Committee kept the Fed's benchmark interest rate target range unchanged at 4.25 to 4.50 per cent. The Fed had cut rates by a cumulative 100 basis points in its three previous meetings.
"That recalibration was appropriate in light of the progress on inflation. With our policy stance significantly less restrictive, we do not need to be in a hurry to adjust our policy stance," Fed chairman Jerome Powell told reporters.
Mr Powell said he wants to see "real progress" on inflation before further reducing rates: "We want to see serial readings that suggest that we're making further progress."
A rate-cut pause was seen as a near certainty in the weeks leading up to the Fed's first meeting this year as stubborn inflation, a booming economy and Mr Trump's policies add a new degree of uncertainty.
Fed officials have indicated in recent months that they were expecting to slow the pace of rate cuts in response to a robust jobs market and inflation remaining stubbornly above their 2 per cent target.
Nor did the FOMC's post-meeting statement offer any hints that it is contemplating another rate cut in the near future, Wells Fargo chief economist Jay Bryson wrote to clients.
The most recent economic projections released by the Fed – from its meeting last month – showed they anticipate only two quarter-point cuts this year, half the amount they projected in September.
With the Fed's preferred inflation metric at 2.4 per cent, some Fed officials have argued for a more cautious approach to cutting rates while others have indicated a willingness to continue supporting a reduction in monetary policy. The Fed's preferred inflation metric will be released on Friday.
Part of the reason for firmer inflation is a resilient US economy backed by strong consumer spending. The US GDP for the fourth quarter of last year is due to be released on Thursday.
Mr Powell anticipated 2024 GDP to be above 2 per cent, while the Fed's preferred inflation metric rose 2.6 per cent for the year.
But the Fed's first meeting of the year comes during a high period of uncertainty in large part because of Mr Trump, whose policies could further complicate Fed decisions.
In a reminder of his first term in office – during which he frequently hounded Mr Powell – Mr Trump last week demanded the central bank immediately lower interest rates. The president does not have any authority over the Fed's decisions.
Me Powell largely avoided answering questions on the new administration and said that he has not had any contact with Mr Trump.
Among the most uncertain aspects of Mr Trump's presidency is his trade agenda, whereby he has vowed to impose tariffs on Mexico and Canada as soon as next month, a harsher levy on China, and is still floating the possibility of universal tariffs.
"We don't know what will happen with tariffs, with immigration, with fiscal policy, regulatory policy," Mr Powell said. "This is no different than any other set of policy changes at the beginning of the administration."
Some Fed officials increased their inflation projections this year in part because of the potential inflationary effects that Mr Trump's policies will have on the US economy. Others have suggested they will be able to "see through" the tariffs, which will not have a substantial effect.
Regardless, the central bank anticipates it will take longer to bring inflation back down to the target point, resulting in a slower pace of rate cuts. Traders do not anticipate the Fed to begin cutting rates again until June, according to CME Group data.
