US Fed Announces First Policy Decisions Under Trump 2.0, Pauses Interest Rates After 100 Bps Cut In 2024

US Fed Policy: The Jerome Powell-led FOMC committee has announced its first monetary policy under Donald Trump's 2.0 in the White House. Owing to uncertainties surrounding Trump's policies, the US Federal Reserve paused interest rates at 4-1/4 to 4-1/2 percent on Thursday, January 30, 2025, in line with estimates. This also comes after 100 bps rates were cut in 2024.

FOMC seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The latest data show that US inflation surged for three consecutive months to 2.9% in December 2024, which was higher from the 2.7% rate in November last year. That being said, US inflation stays above the Fed's target of 2%.

On January 30th, FOMC said, "The Committee judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate."

The Fed pointed out that recent indicators suggest that economic activity has continued to expand at a solid pace.

"The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated," FOMC added.

Accordingly, to support its goals, the US Fed has decided to hold the target range for the federal funds rate at 4-1/4 to 4-1/2 per cent.

Fed said, "The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 per cent objective."

In considering the extent and timing of additional adjustments to the target range for the federal funds rate, FOMC said that it will carefully assess incoming data, the evolving outlook, and the balance of risks.

FOMC will continue reducing its holdings of Treasury securities agency debt and agency mortgage‑backed securities, it said.

For assessing the appropriate monetary policy stance, FOMC said, it will continue to monitor the implications of incoming information for the economic outlook.

Furthermore, FOMC emphasized that it would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the Committee's goals.

For future rate decisions, FOMC will continue to take into account a wide range of information, including readings on labour market conditions, inflation pressures and inflation expectations, and financial and international developments.

FOMC committee members are Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michael S. Barr; Michelle W. Bowman; Susan M. Collins; Lisa D. Cook; Austan D. Goolsbee; Philip N. Jefferson; Adriana D. Kugler; Alberto G. Musalem; Jeffrey R. Schmid; and Christopher J. Waller.

This will be the first pause by the Fed since September 2024. In the previous three consecutive policies, the Fed cut rates by 100 bps overall. The easing of the rate cycle began on an aggressive approach with a 50 bps cut in the September 2024 policy, which was the first cut in four years. This was followed by the second cut of 25 bps in November and another 25 bps in December policy last year.

In the United States, the authority to set interest rates is divided between the Board of Governors of the Federal Reserve (Board) and the Federal Open Market Committee (FOMC). The Board decides on changes in discount rates after recommendations submitted by one or more of the regional Federal Reserve Banks. The FOMC decides on open market operations, including the desired levels of central bank money or the desired federal funds market rate, highlighted by Trading Economics.