At the first meeting of the Federal Reserve (Fed) in 2025, consumers and investors are awaiting what Fed Chairman Jerome Powell has yet to provide them: An answer to the question of how long interest rates will remain high.
In 2024, officials of the Federal Open Market Committee (FOMC) at the Fed cut interest rates by a total of 1 percentage point through three meetings. The federal funds rate is currently in the range of 4.25% - 4.5%.
Those interest rate cuts seem to have little effect on relieving pressure on consumers. According to data tracked by Bankrate, most consumer borrowing costs remain at their highest levels in over a decade. Meanwhile, the 30-year fixed mortgage rate has increased despite the Fed lowering interest rates.
On the afternoon of January 29, U.S. time, the Fed will announce its latest monetary policy decision. Data from CME Group shows that the market is predicting nearly a 100% chance that the central bank will keep interest rates unchanged. Experts say that a rate cut at the March meeting may also not occur if inflation remains stable and the economy stays strong.
The press conference of Fed Chairman Jerome Powell is likely to be the main cause of market volatility. However, according to JPMorgan's chief economist Michael Feroli in the U.S., the press conference may not be as interesting as usual. He stated that Chairman Powell's press conferences often dominate attention each time the Fed meets. But in this first meeting of 2025, he predicts that the Fed Chairman will take a more cautious approach.
President Donald Trump's import tax, immigration, and domestic tax policies could complicate the Fed's plans for interest rate cuts if they ignite inflation.
Last week, speaking at the World Economic Forum in Davos, President Trump stated that he would "request an immediate interest rate cut." His remarks led many to believe that he and the Fed would have conflicts.
Several important reports on the health of the U.S. economy will also be released this week. On January 30, the first estimate of Q4 GDP is expected to show that the U.S. economy grew by 2.6% in the final three months of 2024.
On January 31, the latest report on the personal consumption expenditures (PCE) index - the Fed's preferred measure of inflation - will also be released. Economists predict that the core PCE excluding food and energy prices will reach 2.8% in December, unchanged from the previous month.
Blake Gwinn, head of interest rate strategy at RBC Capital Markets, notes in a client message that the release of data over the weekend, combined with Trump's policies, could make the Fed's role "secondary" in the market.
He argues that President Trump's comments or upcoming inflation data could overshadow the remarks of Fed Chairman Jerome Powell.
