US | Fed pauses rate cuts to kick off 2025

Summary

Signs that core inflation is back on trend to 2% could open the door for another cut in March, but the implementation of policies that could spark an upward trend in inflation, even if temporary, could imply a more extended pause.

Key points

• Key points:
• The Fed kept the policy rate at 4.25-4.50%; the policy statement emphasized a stable labor market and sticky inflation as key factors influencing today’s decision.
• All eyes were on any signals pointing to a more long-lasting pause amid the ongoing uncertainty around the potential effects of Trump’s immigration and trade policies.
• But neither the wording of the statement nor the Q&A gave a strong hint about the possible direction of the next policy decision scheduled for March.
• A cut at the next meeting is still possible if there are signs of less solid growth and the inflation readings in the intermeeting period point to more moderate inflation.
• But additional cuts (particularly our baseline assumption of an additional 25bp rate cut in June) could increasingly be at risk amid tariff-related price pressures.

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