{"id":815,"date":"2025-01-29T13:23:30","date_gmt":"2025-01-29T13:23:30","guid":{"rendered":"https:\/\/www.insuracarelife.com\/blog\/what-to-watch-at-the-federal-reserves-first-meeting-of-2025\/"},"modified":"2025-01-29T13:23:30","modified_gmt":"2025-01-29T13:23:30","slug":"what-to-watch-at-the-federal-reserves-first-meeting-of-2025","status":"publish","type":"post","link":"https:\/\/www.insuracarelife.com\/blog\/what-to-watch-at-the-federal-reserves-first-meeting-of-2025\/","title":{"rendered":"What to Watch at the Federal Reserve\u2019s First Meeting of 2025"},"content":{"rendered":"<div data-testid=\"companionColumn-0\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">The Federal Reserve is set to stand pat at its first gathering of 2025, pressing pause on interest rate cuts as policymakers take stock of how the world\u2019s largest economy is faring.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">After lowering interest rates by a full percentage point last year \u2014 starting with a larger-than-usual half-point cut in September \u2014 central bank officials are at a turning point.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">A strong labor market has afforded the Fed room to move more slowly on reducing rates as it seeks to finish off its fight against high inflation. Officials see the economy as being in a \u201cgood place\u201d and their policy settings as appropriate for an environment with receding recession risks but nagging concerns about inflation.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Stoking fears are a spate of economic policies in the pipeline from President Trump, which include sweeping tariffs, mass deportations, widespread deregulatory efforts and lower taxes. The economic impact of those policies is unclear, but policymakers and economists appear most wary about the possibility of fresh price pressures at a time when progress on taming inflation has been bumpy.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-1\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">The Fed will release its January policy statement at 2 p.m. in Washington, and Jerome H. Powell, the Fed chair, will hold a news conference right after.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Here is what to watch for on Wednesday.<\/p>\n<h2 class=\"css-13o6u42 eoo0vm40\" id=\"link-41158504\">A prudent pause<\/h2>\n<p class=\"css-at9mc1 evys1bk0\">A pause on interest rate cuts from the Fed has been an a highly expected outcome ever since Mr. Powell stressed this fall that the central bank was not \u201cin a hurry\u201d to bring them down.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">The argument for a gradual pace of rate cuts rests on the fact that, despite higher borrowing costs, the economy has held up well, gradually cooling but not cracking.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">That this has happened as inflation receded from its 2022 peak of over 9 percent to around 3 percent, as measured by the Consumer Price Index, has been one of the biggest surprises for most policymakers since the pandemic. But because price pressures have not been fully eradicated yet and overall inflation remains above the Fed\u2019s 2 percent goal, officials are being extra cautious about their next steps.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">In December, the decision to cut rates was a close call. Beth Hammack, president of the Federal Reserve Bank of Cleveland, voted against the move on the grounds that it would be more prudent to see further progress made on quelling inflation before taking further action. Other officials were also mixed on whether to cut, according to minutes of that meeting released this month.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-2\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">In a welcome sign, December\u2019s C.P.I. report suggested that underlying inflation had eased more than expected. For the Fed to cut rates in March, it will need additional data confirming that trend.<\/p>\n<h2 class=\"css-13o6u42 eoo0vm40\" id=\"link-3ae562df\">Just how restrictive are rates?<\/h2>\n<p class=\"css-at9mc1 evys1bk0\">Beyond how long a pause might last, there is also debate over how much the Fed will be able to reduce rates overall to balance its goals of bringing down inflation while maintaining a healthy labor market.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">The answer depends on how much distance officials think they need to travel to reach a level of interest rates that they perceive as \u201cneutral\u201d for the economy, meaning a level that neither revs up growth nor restrains it. The Fed pays particular attention to \u201creal\u201d rates, which take inflation into account.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">In December, Mr. Powell said that at the current range of 4.25 percent to 4.5 percent, rates were still \u201cmeaningfully restrictive,\u201d meaning they were weighing on economic activity. In a speech this month, Christopher J. Waller, a Fed governor, described policy as \u201cstill restrictive in most cases, which should support the goals of policymakers to have inflation at their targets going forward.\u201d<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Other officials see it slightly differently. In explaining her recent dissent, Ms. Hammack argued that the Fed\u2019s policy settings were \u201cnot far\u201d from neutral. In remarks this month, Jeff Schmid, who heads the Kansas City Fed, said rates were\u201d very close\u201d to that level.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-3\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">How Mr. Powell characterizes the current level of interest rates at his news conference on Wednesday will signal the scope of cuts the Fed may be planning for this year. His comments on overall financial conditions will also be notable, given the ongoing rise in yields on government bonds, which underpin borrowing across the economy and on balance can aid or detract from the Fed\u2019s efforts.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">According to projections released in December, most officials forecast just half a percentage point worth of cuts this year \u2014 down from a full percentage point prediction in September. By the end of 2026, they expect rates to fall to between 3.25 percent to 3.5 percent before eventually settling around 3 percent.<\/p>\n<h2 class=\"css-13o6u42 eoo0vm40\" id=\"link-e7835ae\">Trump\u2019s policies in the limelight<\/h2>\n<p class=\"css-at9mc1 evys1bk0\">When officials pulled together their latest projections for where they expected inflation and interest rates to be at the end of 2025, some layered in assumptions about what President Trump\u2019s second term would bring. Others adjusted their forecasts based solely on the incoming data, and a third cohort declined to specify their approach.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Mr. Powell is likely to face questions about how the Fed is thinking about policies like tariffs and deportations now that Mr. Trump has started to follow through on those campaign promises.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">The question is whether these policies will affect the economy in a temporary way, in which the Fed will likely look past those effects, or whether they will alter the course for inflation and the labor market more meaningfully and require them to act.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n<div data-testid=\"companionColumn-4\">\n<div class=\"css-53u6y8\">\n<p class=\"css-at9mc1 evys1bk0\">In Mr. Trump\u2019s first term, the Fed responded to heightened trade tensions by pre-emptively lowering interest rates to ward off an unnecessary economic slowdown. Inflation at the time was subdued, vastly different from the current backdrop.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Mr. Trump has already reiterated in his first week in office that he wants rates to come down \u2014 and fast \u2014 setting up a potential clash with the central bank if the economic conditions do not warrant rate cuts.<\/p>\n<h2 class=\"css-13o6u42 eoo0vm40\" id=\"link-2ae98202\">New Fed voters<\/h2>\n<p class=\"css-at9mc1 evys1bk0\">The January meeting will also feature a changing of the guards, with a new set of policymakers casting votes on policy decisions this year.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">Each of the Fed\u2019s seven governors in Washington vote at every meeting, as does the president of New York\u2019s regional bank, John Williams. Four of the remaining 11 regional presidents vote on a rotating basis.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">This year\u2019s newest voting members are Susan Collins of Boston, Austan Goolsbee of Chicago, Alberto Musalem of St. Louis and Mr. Schmid of Kansas City.<\/p>\n<p class=\"css-at9mc1 evys1bk0\">All four have urged patience on additional rate cuts given the strength of the labor market and have emphasized the importance of seeing more good news on the inflation front.<\/p>\n<\/div>\n<aside class=\"css-ew4tgv\" aria-label=\"companion column\"\/><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Federal Reserve is set to stand pat at its first gathering of 2025, pressing pause on interest rate cuts as policymakers take stock of how the world\u2019s largest economy is faring. After lowering interest rates by a full percentage point last year \u2014 starting with a larger-than-usual half-point cut in September \u2014 central bank [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":816,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[260,545,544,237],"class_list":["post-815","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-blog","tag-federal","tag-meeting","tag-reserves","tag-watch"],"_links":{"self":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/posts\/815","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/comments?post=815"}],"version-history":[{"count":0,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/posts\/815\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/media\/816"}],"wp:attachment":[{"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/media?parent=815"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/categories?post=815"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.insuracarelife.com\/blog\/wp-json\/wp\/v2\/tags?post=815"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}