Washington, Jan 29 (CNN/GNA) – The Federal Reserve on Wednesday hit pause on interest rate cuts in its first key decision of President Donald Trump’s second term.
It’s a move that’s likely to stoke tensions between the central bank and the new president, who has argued that he should have some say in Fed policy.
Central bank officials opted to keep borrowing costs at a range of between 4.25% and 4.5% as they await further progress on inflation, which showed signs of stalling out late last year. Fed officials reached that conclusion in their latest policy statement, omitting a phrase included in the previous statement that said inflation has “made progress.”
Officials have said recently that they’re still confident inflation will eventually reach their 2% target, but the central bank won’t be able to declare victory anytime soon. Fed Chair Jerome Powell said in his post-meeting news conference that an unexpectedly weakening labor market or inflation slowing “more quickly than anticipated” would put rate cuts back on the table.
“We feel like we don’t need to be in a hurry to make any adjustments,” Powell said.
Even though the Fed is mulling a holding pattern that would delay further rate cuts, the central bank’s thinking on borrowing costs could shift if Trump keeps his promise of slapping 25% tariffs on Mexico and Canada, two of America’s biggest trading partners, on February 1.
Economists are warning that Trump’s stiff tariffs, if enacted, plus mass deportation policies and the focus on boosting domestic oil production, could end up further stoking inflation, undoing some of the progress the Fed has seen in recent years.
Fed officials have already begun to consider potential changes in trade policy when determining their outlook for the economy: “What we can do is what we have done, which is study up on this and look at historical experience, read the literature,” Powell said of tariffs. “And we will have to see how it goes.”
GNA/CNN