Fed meeting live updates: Rate cuts paused as inflation, Trump’s plans create uncertainty

WASHINGTON, D.C. – The Federal Reserve paused its interest rate cutting campaign Wednesday and gave no signal it plans to lower rates again in the near term amid uncertainty spawned by inflation and President Donald Trump’s economic policies.

The decision to hold rates steady at a range of 4.25% to 4.5% could mark the beginning of an extended respite as the Fed assesses the course of inflation and awaits details on Trump’s trade and immigration plans. Alternatively, it could be a brief hiatus if inflation swiftly resumes a pullback and officials believe the President’s policies will modestly nudge up consumer prices.

“In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the (Fed) will carefully assess incoming data, the evolving outlook, and the balance of risks,” the Fed said in a statement following a two-day meeting.

That mirrors the guidance Fed officials provided in December and signals “some patience” as they weigh further reductions in the key rate while navigating myriad economic and policy crosscurrents, according to Barclays.

Inflation broadly has eased since a pandemic-related surge but stayed elevated in recent months. The economy and job market have been remarkably resilient, though hiring has slowed substantially. And it’s unclear to what extent Trump will slap certain imports with tariffs and deport millions of immigrants who lack permanent legal status, and what the effects will be on the economy and inflation.

In its statement, the Fed removed its assertion in December that inflation “has made progress” toward the Fed’s 2% goal, simply noting that “inflation remains somewhat elevated.”

It also gave a nod to a job market that has picked up steam lately – with unemployment edging down to a historically low 4.1% – and doesn’t seem to need a boost from Fed rate cuts.

“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the Fed said. That’s an upgrade from the previous statement that noted “labor market conditions have generally eased, and the unemployment rate has moved up but remains low.”

What causes the Fed to change interest rates?

The Fed raises interest rates or keeps them higher for longer to lower inflation by discouraging borrowing and economic activity. It cuts rates to juice a flagging economy or bring rates back to normal as inflation moderates.

What is the current Fed interest rate?

Wednesday’s decision to hold the Fed’s benchmark short-term rate steady comes after officials reduced it by a total percentage point at three straight meetings late last year. That has lowered borrowing costs for credit cards, some mortgages and auto and other loans, and sparked a stock market rally. It also has pushed down bank savings yields that were finally generating healthy returns.

Is inflation really going down?

After raising the federal funds rate to a 23-year high to curb a pandemic-related price surge in 2022 and 2023, the Fed slashed it as its preferred annual inflation measure fell from 5.6% in early 2022 to 2.8% in November – still above its 2% goal.

But inflation has been stuck at that mark in recent months and economists predict a report Friday will reveal a similar figure. That has led Fed officials to predict fewer rate cuts and a pause at this week’s meeting even apart from Trump’s policies.

Monthly cost increases, however, have been tamer and that should translate to milder annual price rises the first half of 2025 due to favorable comparisons with year-ago figures, Goldman Sachs said in a research note. That could give the Fed some leeway to cut rates again within months.

What’s the state of the job market?

Meanwhile, the labor market heated up in December, with employers adding 256,000 jobs and the unemployment rate dipping. Hiring, however, has slipped below pre-pandemic levels and net job growth is robust chiefly because of low layoffs, possibly foreshadowing a slowdown.

The government this week is expected to report the economy grew close to a sturdy 3% annual rate in the fourth quarter and for all of 2024.

How many rate cuts are expected in 2025?

Economist Ryan Sweet of Oxford Economics said the Fed could still agree to as many as three quarter point rate cuts this year, starting as soon as March, if inflation resumes its descent and the job market slows.

Fed Governor Chris Waller recently told CNBC he wouldn’t rule out a March rate cut. “As long as data comes in good on inflation, then I can certainly see cuts coming sooner than markets are pricing,” he said. He has said he doesn’t think tariffs will have a big impact on inflation.

Both Fed officials’ median estimate and futures markets forecast two rate cuts this year. Markets reckon the first will come in June.

Yet some Fed officials have said the recent high inflation readings suggest they should be cautious, especially in light of a solid economy that doesn’t appear to need the Fed’s help. Toss in tariffs that are likely to be passed along to consumers through higher prices and an immigration crackdown that shrinks the labor supply and could raise wages. Both policies could reignite inflation by the second half of the year, Barclays says.

Deutsche Bank estimates 25% tariffs on Canada and Mexico would raise inflation nearly a percentage point to 3.7% by the end of the year. Additional duties on China could lift inflation further.

As a result, Barclays predicts just one rate cut this year in June while Deutsche Bank doesn’t foresee any. Even a pivot to rate hikes is possible, Barclays says, if Trump’s planned tax cuts rev up the economy while tariffs and deportations boost inflation expectations that drive inflation itself higher.

Others project small price bump from tariffs, saying say a drop in imports would strengthen the dollar, lowering import prices for Americans and at least partly offsetting the duties.

Under a worst-case scenario, tariffs and deportations could both goose inflation and reduce consumer spending and economic growth. That would present a thorny dilemma for the Fed – keep rates high to beat back inflation or lower them to jolt the economy.

The Fed’s decision is its first during the Trump administration and comes nearly a week after he told the World Economic Forum he’ll “demand that interest rates drop immediately” after OPEC takes steps to lower oil prices. Such a move presumably would help push down inflation.

The remark set up a clash with Fed Chair Jerome Powell and the central bank, which is structured as an independent agency insulated from political influence so it can make decisions based on the best interests of the economy. Trump repeatedly badgered Powell to cut rates during his first term, though it didn’t appear to affect Fed moves.

What is the probability of a rate cut today? This spring? This year?

The actual percent chance that the Fed will cut interest rates at its January meeting is 0.5%, or about one in 200, according to the CME FedWatch tool.

In other words, there’s a 99.5% chance the Fed will leave the benchmark interest rate where it sits now, as a range from 4.25% to 4.5%.

And what is FedWatch? According to Investopedia, it measures market expectations for changes in the federal funds rate based on investor speculation on its future direction.

Armchair observers can use FedWatch to gauge the chances of a rate cut at every future Federal Reserve meeting in 2025. Here’s what the tool says, as of today:

How will Trump’s economic plans affect interest rates?

President Donald Trump’s plans to cut taxes, impose hefty tariffs on imports and deport millions of immigrants who lack permanent legal status have generated an unusual level of uncertainty about the course of the economy, inflation and interest rates.

USA TODAY previously looked at various scenarios that could result from Trump’s economic policies.

In one predicted scenario, his policies could modestly stoke inflation while the economy slows but posts solid growth. That could move the Fed to order two, or possibly three, rate cuts this year.

Or, Trump’s initiatives could more emphatically reignite inflation while the economy grows sturdily or even heats up. That would probably mean fewer rate cuts from the Fed in 2025 — perhaps none. It might even put rate hikes back in play, forecasters say.

Another possibility: Trump’s blueprint could drive inflation higher while also weakening the economy, an unusual tandem that would pose a vexing dilemma for the Fed: Cut? Hike? Stand pat?

Time will tell.

Why would the Fed stop cutting interest rates?

The Fed chose to reduce its benchmark interest rate three times at consecutive meetings in late 2024.

Why stop now?

If the Fed pauses in its downward path on interest rates, the regulatory pause will have lot to do with inflation. Consumer prices have continued to rise in recent months, albeit at a slower pace than in most of 2022 or 2023. The Fed’s perfect-world inflation target is an annual rate of 2%. The current inflation rate, as of December, is 2.9%. The figure represents a five-month high.

Even as the Fed ordered the last of its 2024 rate cuts, at its December meeting, the panel forecast a significantly slower pace of cuts in 2025, citing lingering inflation and strong economic growth.

In that meeting, the Fed projected only two rate cuts in 2025, down from the four they had envisioned in September.

Is Trump pressuring the Fed to lower rates?

President Donald Trump has wasted no time in reviving a campaign he waged during his first term: Trying to browbeat Federal Reserve Chair Jerome Powell and other Fed officials into lowering interest rates.

Speaking via a video call at the World Economic Forum in Switzerland, Trump said, “With oil prices going down, I’ll demand that interest rates drop immediately.” He also urged that Saudi Arabia and OPEC should take steps to lower oil prices.

Economists said remarks such as that one threaten to compromise the Fed’s independence. Trump’s words could also backfire, they said, by stirring inflation fears that wind up pushing long-term interest rates higher.

Trump’s comments stopped short of badgering the Fed into cutting rates now. Instead, they amounted to speculation that a drop in oil prices would further ease inflation and lead the president to call for lower rates, according to Barclays economist Jonathan Millar, a principal economist at the Fed from 2004 to 2018.

Stock market mixed as traders await Fed news

Stocks delivered mixed results after the opening bell on Wednesday, as traders awaited news and commentary from the Fed on interest rates.

The Dow Jones Industrial Average was up 0.1% shortly after the start of trading. The S&P 500 was down 0.2%. The tech-heavy Nasdaq composite was down 0.5%.

Stock in the chipmaker Nvidia was down more than 2%. That stock has suffered steep losses, and the broader market has seesawed, since Chinese startup DeepSeek unveiled an artificial intelligence model that has seeded doubts about the U.S. approach to AI.

With almost no one expecting an interest rate cut Wednesday, traders will be listening to what Fed Chair Jerome Powell has to say about the course of interest rates over the rest of 2025, and about the potential impact of President Donald Trump’s economic moves.

Will interest rates ever go down?

If the Fed doesn’t budge on interest rates Wednesday, as forecasters predict, then American consumers may have to wait a while to see borrowing costs go down on, well, pretty much everything.

“Anyone hoping for the Fed to ride in as the cavalry and rescue you from high interest rates anytime soon is going to be really disappointed,” said Matt Schulz, chief credit analyst at LendingTree, in an email. “That’s true whether you’re talking about mortgages, auto loans, credit cards or most anything else. That means it is maybe more important than ever to get that high-interest debt under control.”

The average annual interest rate on a new credit card is 24.26%, LendingTree reports. That would be a prime example of high-interest debt.

The average interest rate on a fixed-rate 30-year mortgage is 6.65%, according to Zillow. Bankrate puts the national average at 7.05%. Either way, mortgage rates are much higher now than three or four years ago, when they sat near historic lows.

Why does the Fed raise or lower interest rates?

“Part of the mission Congress has given to the Federal Reserve is to keep prices stable. This means not letting prices rise or fall too quickly,” the Federal Reserve Bank of Cleveland says on its website.

When inflation is running high, the Fed typically raises interest rates to slow the economy and bring inflation down. When inflation is too low, the Fed might lower interest rates to stimulate the economy and raise the inflation rate.

The central bank also lowers rates to stimulate a soft economy and job market, or just to give the economy some breathing room. That, economists say, is what the Fed has been doing over the past year.

Why did the Fed cut interest rates in 2024?

The Fed hiked interest rates to a 23-year high of 5.25% to 5.5% to fight a historic inflation surge. After holding rates at that level through parts of 2023 and 2024, the Fed began lowering its benchmark rate in September, signaling that inflation was coming under control. The annual inflation rate has eased from a peak of 9.1% in mid-2022 to 2.9% in December: much lower, but still above the Fed’s 2% inflationary goal.

A series of rate cuts brought the benchmark federal funds rate down a full percentage point between September and December 2024, to the current range of 4.25% to 4.5%.

When will the Fed cut interest rates again?

At one point, forecasters predicted the Fed would cut interest rates four times in 2025. But forecasts have changed: Inflation remains above the Fed’s 2% target, and the labor market is sturdy, leaving less urgency for the Fed to make cuts.

Most economists expect the Fed will do nothing with interest rates at its next meeting, in March. That means the next rate cut might come in May, a scenario predicted by roughly half of forecasters, according to the FedWatch forecast tool. All told, the market expects two or three rate cuts in 2025.