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The Spokesman-Review Newspaper
Spokane, Washington  Est. May 19, 1883

The Federal Reserve holds interest rates steady

By Andrew Ackerman

The Federal Reserve left interest rates unchanged Wednesday, amid a cloudy economic outlook and concerns that some of President Donald Trump’s policies could stymie the fight against inflation.

Wednesday’s pause comes after the central bank cut interest rates by a full percentage point between September and December of last year. Officials anticipate the pace of future cuts slowing to just two this year, down from four cuts that they projected before the election.

Faced with a solid economy and labor market, top Fed officials say they can afford to move cautiously as they seek to address inflation that has come down significantly from the high levels of three years ago but remains elevated. The growing message is that inflation remains broadly on track, coming down slowly over the next year or two.

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

This week’s pause is fueled at least partly by uncertainty over the way Trump could enact new policies, such as a return to an aggressive and unpredictable global trade overhaul with threats to impose significant tariffs on U.S. trading partners. Though it’s unclear exactly how those policies will affect the economy, some Fed officials have already begun to factor these policies into their economic projections, Federal Reserve Board Chair Jerome H. Powell has said.

During a news conference, Powell said policymakers are in “the mode of waiting to see what policies are enacted.”

“We don’t know what will happen with tariffs, with immigration, with fiscal policy and with regulatory policy. We’re only just beginning to see and actually are not really beginning to see much,” Powell said. “And I think we need to 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 Fed’s benchmark short-term rate, which trickles through the financial system to influence what millions of consumers and businesses pay to borrow money, sits at 4.25 to 4.5 percent. Despite consecutive Fed cuts last year, longer-term interest rates for government borrowing and even for consumer mortgages have risen, partly reflecting expectations of a stronger economy going forward.

Powell shed additional details on how much lower the Fed has to go to get rates to a so-called neutral level where they neither they neither spur nor restrict growth. Powell said the Fed’s rates are still high enough to weigh on economic growth.

You really have to just look out the window and see how your how your policy rate is affecting the economy. And I think we see that it’s having meaningful effects in bringing inflation under control,” Powell said. “It has helped bring the labor market, into balance as well.”

After raising interest rates at a rapid clip to tackle shockingly high inflation in 2022, the Fed kept rates elevated for about a year before it began to lower them in September to shore up a softening labor market.

Now, inflation remains stubbornly elevated, hovering above the Fed’s 2 percent goal, though there are signs it continues to slowly cool. Underlying inflation that strips out volatile food and energy prices eased down in December’s consumer price index. Price increases for housing, one of the biggest components of the index, are also beginning to ease.

Trump himself weighed in last week, saying he expects that steps by his administration to reduce energy prices would make it possible to keep inflation in check and to lower interest rates.

“I’d like to see oil prices come down, and when the energy comes down, that’s going to knock out a lot of the inflation,” he told reporters Thursday in the Oval Office. “That’s going to automatically bring the interest rates down.”