Latest meeting
According to the U.S. central bank, the economic path ahead has turned more treacherous than what was expected in the last few months of 2024. As a result, the Federal Open Market Committee today is expected to keep its policy interest rate unchanged at 4.25%-4.50% for the third straight meeting. It’s a stark contrast to the jumbo 50-basis-point reduction unleashed last September, and the two more cuts immediately after that, as the Fed remains in “wait and see” mode to navigate current uncertainty.
Snapshot: Moves by the Trump administration to slash the size of the federal government and introduce hefty tariffs helped contribute to a downturn in stocks, a jump in bond yields, and a softening dollar. Equity markets have largely recovered from the dramatic drop incurred since “Liberation Day,” but the S&P 500 (SP500) is still down about 4% YTD. So far, the hard data is holding up, but it is getting confusing. Policymakers are still digesting a negative GDP reading that wasn’t really negative, hot inflation data that might not have been all that fiery, and strong jobs reports that might not have reflected recent developments.
A “dot plot” also won’t be released at today’s meeting, so keep an ear out for comments during Jay Powell’s press conference. The Fed Chair has recently faced down pressure from President Trump, with names like “Mr. Too Late,” though Trump has seemingly backed away from discussions on firing Powell. That’s yet another reason the FOMC could hold the line at the next couple of meetings, to stress the independence of the Federal Reserve and not yield to pressure.
Commentary: “From my view, the key thing is that the tight labor market is actually a worst-of-both-worlds scenario for the Fed or for people wanting cuts,” David Russell, Global Head of Market Strategy at TradeStation, said in an interview with Seeking Alpha. “The tight labor market is making up Jerome Powell’s mind for him. It’s making it easy to say ‘no’ to rate cuts. And now that President Trump has said he won’t fire Powell, he’s basically given Jerome Powell more ability to be hawkish.”
