Fed hits pause on interest rate cuts amid Trump’s flurry of economic plans

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President Donald Trump’s “demand” that interest rates come down further was not met on Wednesday, when the Federal Reserve instead decided to hold rates steady. This decision followed three back-to-back meetings with rate cuts in the months before Trump took office.

Hours after the Fed announced its decision, Trump, who appointed Fed Chair Jerome Powell in his first term, accused the central bank of failing “to stop the problem they created with Inflation,” he wrote in a post on Truth Social. “I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing,” Trump wrote.

He also said the central bank has “done a terrible job on Bank Regulation” and will put that responsibility entirely in the hands of the Treasury Department. It’s not clear if Trump is legally able to strip the Fed of its longstanding authority on banking regulation, however.

Powell, meanwhile, had little to say about recent comments Trump has made about the Fed.

“I am not going to have any response or comment whatsoever on what the president said,” Powell told reporters at a news conference Wednesday after the Fed’s monetary policy meeting. “It is not appropriate for me to do so.”

He also advocated for the central bank’s independence, as Trump pushes for the opposite. “That will give us the best possible chance to achieve these goals for the benefit of the American people,” he said, referring to the Fed’s dual mandate for stable prices and maximum employment. “People should have confidence in that.”

The Federal Reserve’s decision on Wednesday to keep its overnight bank lending rate where it is — following a full percentage point cut last year — means you still have an opportunity to enjoy solid, inflation-beating returns on your savings if you’re smart about where you put them.

At the same time, because the Fed’s rate moves (or inaction) can directly or indirectly influence rates on a range of consumer loans and financial products, you’ll want to do what you can to limit the interest payments on your debts so you don’t spend a dollar more than necessary.

“Borrowers shouldn’t bank on the Fed being in any hurry to cut interest rates again, so focus on paying down high-cost debt. On the bright side, savers will continue to enjoy returns that outpace inflation if the money is parked in the most competitive (accounts),” said Greg McBride, chief financial analyst at Bankrate.

Here are some recommended ways to accomplish both your savings and debt goals.

A section of border fencing is seen on January 3 in Ruby, Arizona.

The unemployment rate has stabilized in part because of lower immigration in recent months, Federal Reserve Chair Jerome Powell said Wednesday.

“The flow across the border has decreased very significantly, and there is every reason to expect that to continue,” he said. “But job creation has come down a bit, too. So, if those things come down together, that can be a reason for the unemployment rate to stabilize.”

“In other words, the break-even rate: As population rate growth slows, the need to make jobs for workers declines as well,” he added.

Economists have noted that the recent years’ surge in immigration has helped to fill worker shortages – industries such as leisure and hospitality, construction and health care – amid a broader US trend of aging and retiring workers as well as slower population growth.

President Donald Trump’s moves to restrict immigration and conduct mass deportations have been touted as avenues to ease demand and provide jobs and better wages for lower-income Americans, some economists counter that those actions could lead to worse labor market outcomes and higher prices.

The New York Stock Exchange is seen in New York on Wednesday.

US stocks closed lower on Wednesday as the Federal Reserve held its benchmark interest rate steady, matching expectations.

The Dow closed lower by 137 points, or 0.31%. The S&P 500 closed lower by 0.47% and the Nasdaq Composite was down 0.51%.

During his remarks to reporters, Fed Chair Jerome Powell said the central bank does “not need to be in a hurry to adjust our policy stance,” offering a signal that rates might remain steady for longer.

“No surprise the Fed is on hold. Even they have to wait and see Trump’s policies on taxes, immigration, deregulation and tariffs before they cut rates,” said Gina Bolvin, president of Bolvin Wealth Management Group, in an email.

Investors largely expected the Fed to hold rates steady.

“We view this as a non-event and that investors should have no change in market views,” said Larry Tentarelli, chief technical strategist at Blue Chip Daily Trend Report, in an email.

Traders expect a 22% chance the Fed will cut rates at its next meeting in March, compared to yesterday’s expectations of a 31% chance, according to the CME FedWatch Tool.

“On balance, this Fed meeting leans hawkish with a positive view on employment and a cautious take on inflation,” said Thomas Urano, co-chief investment officer at Sage Advisory, in an email.

Mass deportations of immigrants who’ve entered the country illegally and levying steep, sweeping tariffs on America’s largest trade partners, as President Donald Trump promised to do, carry a risk of fueling higher inflation.

The Federal Reserve has a tool to fight higher inflation, but it’s not ready to use it, Fed Chair Jerome Powell said on Wednesday.

That tool is raising interest rates, which the Fed did to help curb inflation after it hit a 40-year high in 2022. Raising rates makes it more expensive for consumers and businesses to borrow money. The added cost means they have less money to spend, which can stop prices from rising as high as they otherwise would.

Just as was the case five years ago, Powell said central bankers would need to see “some evidence” that inflation is on course to move higher to consider hiking rates. “We will discuss that again,” he said, but added that it’s not wrong to assume officials wouldn’t want to start talking about hiking until there’s a more apparent threat of inflation.

A customer shops at a grocery store in Wheeling, Illinois, on December 11, 2024.

With annual inflation hovering just four-tenths of a percentage point above the Federal Reserve’s 2% target as of November, the latest month data available of the central bank’s go-to gauge, some economists have implored the Fed to consider a new inflation target.

After all the progress that’s been made getting inflation down from a 40-year high in 2022 of over 7% for the Personal Consumption Expenditures index, a few tenths of a percentage point higher than 2% may seem trivial. That’s because getting inflation down to a firm 2% could cause inflict pain on consumers if it prompts the central bank to hold rates higher for longer.

But Fed Chair Jerome Powell signaled he has no appetite for remotely contemplating a higher inflation target.

“I think that goal has served us well over a long period of time. It is also the sort of global standard,” he said, referring to many other central banks that similarly target 2% inflation.

“I would not look at changing it anyway, but I certainly would not look at it at a time when you’re not meeting it,” Powell added.

He then doubled down even further to clarify his position: “There is no interest at all in changing it, if I am being at all unclear.”

In touting “resilience” in the financial sector, Federal Reserve Chair Jerome Powell noted Wednesday that banks are well-funded and households — by and large — “are in pretty good shape financially these days.”

However, that’s not the case for all households, Powell added.

“For lower-income households, they are under significant pressure,” he said. “In the aggregate, the numbers are good, but we know that people at the lower end of the income spectrum are struggling with costs.”

The high inflation seen in recent years has had a compounding effect on American households, causing prices of essential goods and services to quickly rise to higher, unpalatable levels.

“Inflation is now much closer to target, but people are not really feeling that,” Powell said.

And recent data is showing some of that financial strain: The share of people making just the minimum payment on their credit cards hit a 12-year high, according to third-quarter 2024 data released last week by the Federal Reserve Bank of Philadelphia.

Cranes used for shipping containers rise from the Port of Newark on September 30, 2024 in New York City.

As the threat and extent of President Donald Trump’s tariffs loom, the Federal Reserve is taking a “wait-and-see” approach before it adjusts monetary policy, Chair Jerome Powell said Wednesday.

Put simply, the situation is quite complex, he said.

“The range of possibilities is very, very wide,” Powell said. “We don’t know what is going to be a tariff; we don’t know for how long, how much, what countries, and we don’t know about retaliation or how it will transmit through the economy to consumers.”

Considering the variables and all the unknowns, the Fed has to “wait and see,” he said.

“What we can do is what we have done, which is study up on this and look at historical experience, read the literature,” he said. “And we will have to see how it goes.”

Read more on tariffs here.

Traders work on the floor at the New York Stock Exchange on January 21.

Stocks are flying high: The S&P 500 is up 3% this year despite a sharp selloff on Monday, and stocks are 24% higher over the past year. That’s rattling some nerves on Wall Street that we’re due for a significant correction — or even a bear market, when stocks tumble 20% or more.

Federal Reserve Chair Jerome Powell, in response to a question from CNN’s Matt Egan, said Wednesday that he agrees stocks may be overpriced, but the Fed’s high rates are compensating to keep financial stability in check.

“We look from a financial stability perspective at asset prices generally, along with things like leverage in the household sector, leverage in the banking system, funding risk for banks and things like that.,” Powell said. “Yes, I would say they are elevated by many metrics right now. A good part of that, of course, is this thing around tech and AI.”

But Powell touted resilience in the financial sector, noting banks are adequately capitalized, and household finances are in good shape, overall.

“You can’t just take equity prices. You have to look at rates, too,” Powell said. “That represents a tightening in conditions, with higher rates. So, overall, financial conditions are probably still somewhat accommodatey, but it is a mixed bag.”