Fed keeps interest rates on hold
The Federal Reserve has kept interest rates on hold, as US rate-setters signalled they are in no rush to cut despite Donald Trump’s relentless campaign to drastically lower borrowing costs.
The rate-setting Federal Open Market Committee said on Wednesday that economic activity was “expanding at a solid pace” and unemployment was showing “some signs of stabilisation” — hints that officials believe rates are now at an acceptable level for the world’s largest economy.
The move to keep the benchmark federal funds rate within a 3.5- 3.75 per cent range follows three quarter-point cuts in a row as the labour market showed signs of weakening.
Fed governor Christopher Waller, one of four candidates left in the race to replace Jay Powell as chair later this year, dissented, joining fellow governor and Trump ally Stephen Miran in backing a quarter-point cut.
Powell said on Wednesday that “if you look at the incoming data since the last meeting [there is a] clear improvement in the outlook for growth . . . everything comes in suggesting that this year starts off on a solid footing for rates”.
He added that inflation had performed “about as expected” and there was labour market data suggesting “evidence of stabilisation”.
Trump has said he wants rates as low as 1 per cent — a level the president claims would lower the US government’s financing costs by hundreds of billions of dollars.
The Fed has faced a delicate balancing act in setting rates at a level that not only guards against a sharp rise in unemployment but also keeps price pressures in check.
The US economy added just 50,000 jobs in December, according to Bureau of Labor Statistics figures that offer the latest sign, after years of stellar performance, that hiring in the world’s largest economy is beginning to slow. Unemployment fell slightly to 4.4 per cent last month, down from a revised 4.5 per cent rate in November.
However, the Fed’s preferred measure of inflation climbed to 2.8 per cent in November from 2.7 per cent in October, according to the most recent figures. It has been above the central bank’s 2 per cent goal since early 2021.
S&P 500 ends flat after hitting 7,000 points for first time
US stocks and the dollar trimmed some of their initial exuberance following Jay Powell’s press conference, which followed the Federal Reserve’s decision to keep interest rates on hold.
The S&P 500 finished fractionally lower on Wednesday, denying it a close above the 7,000 point mark for the first time. Wall Street’s benchmark index topped the level during trading earlier in the day.
The tech-heavy Nasdaq Composite rose 0.2 per cent and is reapproaching its peak.
The dollar index eased from session highs, but remained 0.2 per cent at 96.4. The gauge, which tracks the currency against a basket of peers, hit a four-year low on Tuesday.
The yield on the two-year Treasury, which is sensitive to policy expectations, edged 0.04 percentage points higher to 3.57 per cent.
Powell tells potential successor to ‘stay out of elected politics’
Jay Powell called on his potential successor to steer clear of politics and embrace accountability through interactions with Congress.
The chair, who is due to step down in May, urged whoever follows him to “stay out of elected politics”.
“Don’t get pulled into elected politics. Don’t do it,” he said.
Powell has largely refused to engage when Donald Trump has issued demands for rate cuts, although he made an exception this month following the administration’s decision to launch a criminal probe into him.
He also called on his successor to engage with Congress, not as a “passive burden” but as an “affirmative, regular obligation”.
“Our window into Democratic accountability is Congress,” he continued. “If you want democratic legitimacy, you earn it by your interactions with our elected overseers.”