Fed Expected to Keep Rates Unchanged
With jobs steady and inflation still above target, the Fed is likely to hold rates this week, signaling fewer cuts ahead for mortgage, auto and business loans.
WASHINGTON — After two weeks of intense political and legal scrutiny, the Federal Reserve will seek to make this week's meeting about interest rates as straightforward and uneventful as possible.
The central bank's interest rate-setting committee is almost certain to keep its key short-term rate unchanged at about 3.6%, after three straight quarter-point cuts last year. Fed Chair Jerome Powell said after December's meeting that they were “well positioned to wait to see how the economy evolves” before making any further moves.
When the Fed lowers its short-term rate, it can over time influence other borrowing costs for things like mortgages, auto loans and business borrowing, though those rates are also affected by market forces.
Some Fed officials have signaled the central bank is likely to keep rates unchanged at their two-day meeting that ends Wednesday. The Fed's three rate cuts last year were intended to bolster the economy after hiring slowed sharply over the summer and fall.
Yet the unemployment rate ticked lower in December, after picking up for much of last year, and there are other signs the job market may be stabilizing. The number of people seeking unemployment benefits has stayed historically low, a sign that layoffs haven't spiked.
Meanwhile, inflation remains elevated and actually ticked higher last year, according to the Fed's preferred measure. Prices rose 2.8% in November from a year earlier, the latest data available. That is up from 2.6% in November 2024.
Unless businesses start cutting jobs or the unemployment rate rises, the Fed is unlikely to cut rates again for at least a few months, economists say. If inflation slowly declines this year, as economists expect, the Fed may cut again in the spring or summer. Wall Street investors expect just two quarter-point rate reductions this year, according to futures prices.
Many economists expect growth could pick up in the coming months, which would be another reason to forego rate cuts.
The economy expanded at a 4.4% annual rate in last year's July-September quarter and may have grown at a similarly healthy pace in the final three months of last year. If such solid growth continues, Fed officials will likely wait to see if hiring picks up as well, further reducing the need for more rate cuts.
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