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The US Fed on Wednesday paused interest rate cuts after its last slash, confirming an expected cautious approach to further reductions in the year and signalling a wait-and-watch approach to gauge what policies President Donald Trump may pursue.

The Fed decided to maintain the rates at 4.25% to 4.5% in its latest statement. The central bank acknowledged that “inflation remains somewhat elevated” even as unemployment rate has “stabilized at a low level” in recent months.

This decision to pause came after Trump recently said he would press for interest rates to come down “immediately”.

Markets had already anticipated that the Fed would go slow on rate cuts this year after data suggested that progress on getting inflation down to the central bank’s 2% target was stalling.

Inflation rose more than expected in December to 2.9% as the CPI had accelerate for the third month in a row.

Fed said the future tweaks to interest rates will be done after carefully assess incoming data, the evolving outlook, and the balance of risks.

The central bank said 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.”

An interesting outcome from the Fed meet is that policymakers voted unanimously to keep the lending rates unchanged.The Fed had delivered 100 basis points of cuts towards the end of 2024, which included a standard rate reduction of 25 bps at its final meeting of the year in December.

Analysts are divided about how many rate cuts they expect the Fed to make this year, pointing to uncertainty about the economic effects of President Trump’s trade and immigration proposals.

Fed said it would continue to monitor the implications of incoming information for the economic outlook and would be prepared to adjust the monetary policy stance if risks emerge that could impede the bank’s goals.

The US central bank has a dual mandate to act independently tackle inflation and unemployment. However, with Trump in office, analysts said it would be interesting to see how the rate-setting committee navigates the challenges ahead.

  • Published On Jan 30, 2025 at 01:10 PM IST

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