US FOMC 29th Meeting Highlights: Fed Holds Interest Rates Steady

On January 29, 2025, the Federal Reserve decided to keep the federal funds target rate (FFTR) unchanged at 4.25%–4.5%. This decision marks a cautious approach as the central bank monitors economic data and policy changes. Fed Chair Jerome Powell addressed the decision in a press conference, offering insight into the Fed’s outlook for the economy, inflation, and labour market.

Economic Growth and Progress

• The US economy has made significant growth towards the fed’s goals. GDP growth exceeds 2%, and inflation is nearing the target but is still elevated (PCE rose 2.6% in 2024 and Core PCE increased 2.8%). Powell expects the progress on inflation to continue, and the Fed remains watchful.
• Regarding the Labor Market, Powell said it’s no longer a source of inflationary pressure.

The Crypto Markets

• Jerome Powell stated that they support cryptocurrencies, and banks can engage with crypto firms if they manage risks effectively. While the threshold for crypto activities is higher due to the industry’s newness, Powell clarified that the Fed does not intend to “debank” legitimate businesses.
• He emphasised that banks must carefully assess risks when working with crypto clients, reiterating the Fed’s openness to financial innovation. Powell also stressed the need for a clear regulatory framework to address crypto-related challenges.
• Following his remarks, Bitcoin rebounded by 3.3%, signalling a positive market response.

Fed’s Approach Moving Forward

• The Fed is in no rush to change policy, and the future decisions will be based on upcoming data. However, uncertainty remains elevated due to significant policy shifts, including potential economic impacts from President Trump’s administration.
• Powell stated that the Federal Reserve may consider cutting rates if inflation data shows signs of cooling and that the spotlight moving forward will be on CPI and PCE data. However, this outcome remains uncertain due to potential economic shifts under President Trump’s new administration and the impact of his tax tariffs.
• Powell avoided commenting on potential tariff policies, emphasising that the Fed does not speculate on political decisions.

Market Reaction

• Stocks and crypto markets reacted with slight gains, as investors viewed the decision as a sign of economic stability.
• The Fed’s cautious stance suggests no immediate rate cuts, meaning borrowing costs will remain steady for businesses and consumers.