The Federal Reserve has decided to keep its benchmark interest rates unchanged at a range of 4.25% to 4.5%. This marks a pause after a series of rate cuts that began in September 2024. Over the last few months, the Fed lowered rates three times, reducing the benchmark interest rates by a full percentage point.
The decision to pause rate cuts comes as the economy shows signs of improvement but with lingering inflation concerns. The Fed began cutting rates last fall in response to cooling inflation, a slowing job market, and rising unemployment. However, its latest move is seen as a “wait-and-see” approach, especially with the recent political shifts under President Trump. Economists speculate that the Fed may be holding off on further cuts to gauge the potential economic impact of the new administration’s policies, particularly President Trump’s proposed tariffs, which could stoke inflation.
Despite significant progress in reducing inflation from its peak of 9.1% in June 2022, inflation is still a concern. It rose 2.9% year-over-year in December 2024 and remains close to 3%—above the Fed’s target of 2%. In response, the central bank has adopted a cautious stance. Interestingly enough, in its press release, the Fed excluded its statement that it believed that inflation “has made progress” toward its goal. This isn’t surprising because the Fed pushed back its inflation target timeline in December. While the original goal was to bring inflation to 2% by 2026, it now projects achieving that target in 2027.
On a positive note, the Fed has expressed that the U.S. labor market remains solid, with a stabilized unemployment rate. This indicates that businesses continue to borrow and hire, supporting the overall economic growth.
The Fed’s next meeting is scheduled for March 19., and it’s expected that the central bank will again hold rates steady at that time. Economists predict that the Fed may not consider additional rate cuts until May 2025, depending on future inflation data and labor market trends.
While the Fed has made substantial progress in addressing inflation, the current economy, including political uncertainty and persistent inflationary pressures, will likely keep borrowing costs high for the foreseeable future. Small businesses and consumers will need to prepare for potentially higher borrowing costs as the Fed remains cautious about the pace of future rate cuts.
