The Federal Reserve left its benchmark interest rate unchanged on Wednesday after cutting it three times in a row last year, signalling a more cautious approach as it seeks to assess the direction of inflation and the potential impact of President Donald Trump’s policies.
The Fed reduced its rate last year to 4.3% from 5.3%, partly due to concerns that the job market was weakening. Hiring had slowed during the summer, and the unemployment rate had ticked up, prompting Fed officials to approve an outsized half-point cut in September.
However, hiring rebounded last month, and the unemployment rate declined slightly to a low of 4.1%.
In its statement on Wednesday, the Fed upgraded its assessment of the job market, calling it “solid” and noting that the unemployment rate “has stabilised at a low level in recent months.” It also appeared to adopt a tougher stance on inflation, stating that it “remains somewhat elevated.” A stronger job market and persistent inflation would typically suggest fewer rate cuts in the coming months.
This follows Fed Chair Jerome Powell’s statement that the US central bank is in "no hurry" to lower rates in the foreseeable future due to prevailing uncertainty over President Trump’s policies and their economic impact.
“A resilient labour market and a steadily growing economy give the Fed ample room to assess incoming data as it arrives, with the FOMC of the view that material declines in inflationary pressures must be observed before the next round of rate cuts,” said Akshay Chinchalkar, Head of Research at Axis Securities.
That aligns with traders’ expectations—the first rate cut this year is not priced in before June, with a total of two cuts, amounting to 50 basis points, expected for the full year, he added.
The Fed anticipates delivering two rate cuts in 2025, potentially beginning in late Q2.
On the domestic front, the Reserve Bank of India (RBI) has begun easing liquidity, and a 25-basis-point rate cut in February appears justified, said Ankita Pathak, Chief Macro and Global Strategist at Ionic Wealth by Angel One.
According to brokerage firm Jefferies, the RBI’s monetary policy committee meeting, scheduled for 7 February, may bring positive surprises with a pro-growth approach.
The recent move by the central bank to inject liquidity is a positive signal, the report noted, referring to the RBI’s announcement this week that it would inject ₹1.5 lakh crore into the banking system by the end of February.
In its monetary policy review on 6 December, the RBI reduced the cash reserve ratio (CRR) for banks by 0.5 percentage points to increase lending capacity and stimulate economic growth, while keeping the key policy repo rate unchanged at 6.5% to maintain inflation control.
The CRR cut infused ₹1.16 lakh crore into the banking system and was intended to lower market interest rates to boost economic growth.
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