The Federal Reserve kept rates on hold yesterday, with chair Jerome Powell signalling the central bank is “in no hurry” to adjust its policy stance, despite President Donald Trump’s invitations to cut.
The meeting was interpreted as a U-turn from September 2024, when a 50-basis-point decrease led markets to believe a slew of cuts was due this year. Instead, experts now seemingly ruled out a March cut as well, meaning markets are left to wait until June for a more dovish monetary environment.
Powell did not explicitly mention which risks the Fed believes could push inflation higher, even though that has driven its shift in policy stance, as noted by Jean Boivin, head of the BlackRock investment institute.
“The Fed is trying to avoid making any forward-looking statements given the political changes in Washington,” he said.
“That left yesterday’s revised statement and press conference largely uninformative about how the most important developments to come will shape its decisions.”
Allison Boxer, economist at PIMCO, blamed the elevated uncertainty about the outlook for US fiscal and trade policy, alongside recent data showing solid growth and labour market stability. But Powell’s messaging was not hawkish, suggesting the bank remains on track to keep easing in June.
“We continue to expect the Fed to ease rates modestly further in 2025, following the 100 basis points of easing last year, but the timing and size of rate cuts are more uncertain,” she said.
“Following the meeting, futures markets implied the policy rate will end 2025 about 45 basis points lower, a level consistent with Fed officials’ projections shared at the December meeting.”
References to the “progress” inflation had made toward the 2% objective were removed from the bank’s statement, briefly sending the S&P 500 into a jittery drop, immediately reversed when Powell clarified the deletion was not intended to send a signal.
Against the backdrop of elevated uncertainty, intermediate-maturity bond yields look attractive, the economist said, relative to PIMCO’s long-term neutral real interest rate baseline of 0%–1%.
“Today’s starting yields also compare favourably against the equity markets, where valuations are notably high,” she concluded.