FOMC Statement and Press Conference – Currency Thoughts
FOMC Statement and Press Conference
January 29, 2025
As expected, there was no change made in the 4.25-4.50% federal funds rate target, and balance sheet reduction will continue as previously indicated.
Several tweeks were made to the FOMC’s characterization of U.S. economic trends:
- December’s statement called unemployment stabilized at a low level; this month joblessness is said to have move up but remains low.
- The remark on labor market conditions was changed from “have generally eased” to “remains solid.
- Regarding inflation, a passage was deleted saying that “inflation has made progress toward the 2% objective” but remains elevated. The language now merely states that inflation remains elevated.
To nobody’s surprise, the federal funds rate was left at 4.25-4.50%. This pause had been repeatedly implied in comments made by Fed officials since the last meeting. The vote was a unanimous 12-0. One dissenter in December who voted against a rate cut taken then, Cleveland Fed President Hammack, is no longer among the subset of district presidents with voting privileges. Daly, Barkin and Bostic have also been rotated out of that group and replaced by Collins, Goolsbee, Musalem and Schmid.
A significant takeaway of mine from Chairman Powell’s press conference is that an interest rate change at the next FOMC policy review in March appears highly doubtful. One question specifically asked if a cut at that time would be on the table for discussion, and Powell did not explicitly answer yes or no. If a reduction was even slightly possible, it would have been easy for him to fall back on the mantra that policy isn’t pre-determined and that decisions are made meeting to meeting based on all available relevant information.
I was struck too by his hesitancy to remotely comment on the substance of policy changes or even how such might impact the actions of the central bank. This wall of no or highly limited comment came up on a wide range of “what if” questions. Two issues seem to be happening. One is that policies are incredibly uncertain on a very wide range of issues, including tariffs. With so man unknown and known unknowns in play, it’s hard for policymakers to plan. The other issue appears to be fear of reprisal. That’s a major tool of the new federal administration, so people are naturally going to be very guarded in venues like a press conference about what they say. “No comment” is a sensible strategy of response to any weighted question, even for the head of a presumably “independent” central bank.
Third, the broad parameters of U.S. monetary policy seems unchanged from the last meeting. On both occasions, Powell stressed that the U.S. economy and Fed policy seem to be in a good place. Fed policy is still believed to be restrictive but considerably less so than before the percentage point of reduction in the federal funds target done between September and December. The labor market has loosened sufficient, and Fed officials don’t want nor expect such to weaken further going forward. Inflation numbers were more constructive the last two months, but such backed up before that and remain above the 2% target. Without any urgency to cut rates to stimulate overly weak growth, the Fed will wait to see confirmation of a resumed and meaningful downtrend in inflation to its target. That will take more than a month or two. Officials are confident that such confirmation will be forthcoming, particularly since housing sector service prices are finally starting to recede.
Finally, the Fed is undertaking a scheduled examination of the monetary framework this year. Results are expected around summer, but one outcome that Powell felt free to share is that the 2% inflation target will not be changed. Officials feel well-served by that particular definition of price stability, and he added that 2% had become a standard used by many other central banks around the world as well.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
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