FOMC January 2025 Meeting Summary: Hawkish Pause
(Helmy Kristanto, Kefas Sidauruk - BRIDS Economic Research)
As expected, the Fed held its policy rate at 4.25%–4.50%, stressing the need for patience in adjusting monetary policy—a stance echoed by Fed officials in recent weeks. Chair Powell highlighted the challenge of balancing the risk of cutting rates too soon against the potential economic drag of keeping policy too restrictive.
We note four key points from the meeting:
- Hawkish stance: No rush to cut rates further. Powell emphasized that monetary policy remains "meaningfully restrictive" and that the Fed is "not in a hurry to adjust our policy stance." While inflation is gradually declining, he cautioned that easing policy too quickly or too aggressively could slow progress. The Fed remains data-dependent, with rate cuts relying on further inflation improvement or signs of labor market weakness.
- Stable labor market and economic outlook. The Fed views the labor market as balanced, noting that it is "not a source of significant inflationary pressures." The unemployment rate held steady at 4.1%, with job gains averaging 170k per month in Q4. Powell expressed confidence in economic resilience, stating that "GDP looks to have risen above 2% in 2024, supported by strong consumer spending."
- Gradual but steady inflation progress. Inflation has declined, though Powell noted that "Core PCE prices rose 2.8% over the past year, still somewhat above our 2% longer-run goal." The Fed anticipates further disinflation, especially as housing services inflation eases, but remains cautious about potential risks, emphasizing that "we will continue to assess incoming data, the evolving outlook, and the balance of risks."
- Uncertainty over Trump’s policies. Powell acknowledged increased uncertainty surrounding fiscal and trade policy under the new administration, repeatedly stating, “We don’t know” when addressing the potential impact of tariffs. He also noted that "we need to let those policies be articulated before we can assess their implications for the economy," signaling a reactive rather than proactive Fed stance. Powell emphasized that tariffs, immigration policies, and regulatory changes could affect inflation and growth, but for now, the Fed remains in a wait-and-see mode.
Market impact. With no rate cut expected until late in the 1H25, the DXY's decline may be limited in the short term, in our view, especially as other major economies like Canada and the EU continue to ease rates. Following the meeting, the DXY approached the 108 level, while the 2-year UST yield rose 2bps to 4.21%, and the 10-year yield remained steady at 4.55%.
… Read More 20250130 FOMC January-25
