Above, Jerome Powell
At the Federal Reserve’s first 2025 press conference January 29, following a two-day meeting, Fed Chair Jerome Powell announced that there would not be an immediate rate cut. The action, or inaction, which was unanimously agreed upon by the Federal Open Market Committee (FOMC), was not a surprise, as there is a belief that President Donald Trump’s tariff, immigration and tax policies could throw a wrench into the Fed’s rate-cutting strategies if they cause more inflation.
At the World Economic Forum’s annual meeting last week in Davos, Trump said he’d “demand” interest rates drop “immediately.”
While Powell said he has had no contact with the president regarding those comments, he maintained that the economy has shown resilience with GDP growth above 2% and solid labor market conditions, though inflation remains slightly above the 2% target. The FOMC’s policy stance is less restrictive than before, he said, allowing flexibility to adjust based on economic developments.
“Activity in the housing sector seems to have stabilized in the labor market. Conditions remain solid. Payroll job gains averaged to 170,000 per month over the past three months. Following earlier increases. The unemployment rate has stabilized since the middle of last year and at 4.1% in December remains low.”
At the same time, Powell said he had heard “anecdotally” that it had “suddenly gotten harder” for construction industries and other businesses that depend on immigrant labor to find workers, while adding that hasn’t shown up in the data yet.
The committee is also conducting a five-year review of its monetary policy framework, with a focus on maintaining the 2% inflation goal. The Fed remains committed to supporting maximum employment and price stability, emphasizing the impact of their actions on communities and businesses across the country, Powell said.
Asked about President Trump’s comments in Davos, Powell said that “I am not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so. The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work, and that’s how we best serve the public.”
The Fed reiterated that the “timing and extent” of further interest rate cuts—language it introduced last month as it laid the groundwork for Wednesday’s pause—would depend on the “incoming data, the evolving outlook and the balance of risks.”
Last year, with inflation slowing and the job market showing signs of a potential slowdown, officials on the FOMC slashed the benchmark financing rate by a full percentage point across three consecutive meetings. The rate is now in a range of 4.25% – 4.5%.
Consumer borrowing costs remain the highest in over 10 years, according to data tracked by Bankrate, while the 30-year fixed-rate mortgage actually rose despite the cuts, so it is not clear how another rate cut would affect interest and mortgage rates in the short term.
Shortly before the event, Dr. Selma Hepp, CoreLogic chief economist, noted that “(t)he nation’s economy continues to be resilient against long-term economic setbacks, which means that the Fed is in no imminent need to continue its rate cuts. And with the economic activity expected to remain robust and continue to post a 2%-plus growth rate, the case for further monetary loosening in the coming months is increasingly less compelling.
“Nevertheless, there are sectors of the economy, such as the housing market and pockets of the income spectrum, that are challenged by high rates and overall high prices. And, with mortgage rates expected to remain higher for longer and with limited inventory, existing-home sales activity keeps reaching new lows. In contrast, homebuilders have added more new homes last year and continue to offer rate buydowns on new construction, keeping those sales strong.”
MBA SVP and Chief Economist Mike Fratantoni had this take:
“The FOMC sees solid growth, a strong job market, and inflation still above the Fed’s target, indicating that its current target for the federal funds rate is about right, holding back the economy a bit to move inflation down over time. Quantitative tightening continues without changes, with their holdings of Treasuries and MBS continuing to slowly roll off passively.
“With no news in the statement, every word from upcoming speeches will be closely parsed to determine whether this is just a pause before another cut or two or whether this level of the federal funds rate will be the low point for this cycle. MBA is forecasting one additional cut this year. With the Fed on hold, we do expect that longer-term rates, including mortgage rates, will also stay within a narrow range for the foreseeable future.”
