Fed Ends Streak Of Rate Cuts, Entering ‘Wait And See’ Phase

The Federal Reserve’s policy committee voted to hold its key interest rate steady Wednesday, as stubborn inflation and a resilient labor market in recent months have curbed the central bank’s appetite to lower borrowing costs.

As widely expected by financial markets, the Federal Open Market Committee held the fed funds rate at a range of 4.25% to 4.5% at its meeting Wednesday, ending a three-meeting streak of rate cuts. The fed funds rate, which influences borrowing costs on all kinds of loans, is now a full percentage point below the 20-year high where it had been held for more than a year to combat inflation. However, Fed officials still consider it “restrictive,” or high enough to discourage borrowing and spending, and a drag on the economy.

Fed officials cut rates late last year after economic data showed inflation was falling toward the central bank’s goal of a 2% annual rate. At the same time, the labor market was weakening and unemployment was rising. Both of those trends encouraged the Fed to cut rates to boost the economy and salvage the labor market, as the Fed pursued its “dual mandate” to use monetary policy to promote full employment and low inflation.

But since then, inflation has grown more stubborn. Fed officials have also shown concern about President Donald Trump’s proposed tariffs on foreign trade, which could push up consumer prices and stoke inflation depending on how they are implemented, in addition to the effects of other policies he has proposed including reducing federal regulations and deporting immigrants en masse. Meanwhile, unemployment has stabilized, reducing the urgency to cut rates.

“The committee is very much in the mode of waiting to see what policies are enacted. We don’t know what will happen with with tariffs, with immigration, with fiscal policy and with regulatory policy,” Federal Reserve Chair Jerome Powell said at a press conference following the rate announcement. “We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”

The official statement published Wednesday was similar to the one from its most recent meeting in December but removed references to the unemployment rate having risen and inflation having made progress toward the Fed’s goal.

“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the committee said in a statement. “Inflation remains somewhat elevated.”