Christopher Rigbar
The Federal Reserve pushed the pause button on its interest rate cuts on Wednesday, leaving its key rate at around 3.6 percent after cutting it three times last year.
The central bank said in a statement that there was stability in the job market while also saying that growth was “solid”, which was “modest” from last month’s feature.
With the economy growing at a healthy pace and no sign of hiring, Fed officials likely see little reason to rush into further rate cuts. While most policymakers expect borrowing costs to fall further this year, many want to see evidence that stubborn inflation is moving closer to the central bank’s target of 2 percent. Inflation was 2.8 percent in November, slightly higher than a year ago, according to the Fed’s preferred measure.
Two officials disagreed with the decision, with Governors Stephen Moran and Christopher Waller preferring another quarter-point reduction. President Donald Trump appointed Muran in September, while Waller has been considered to replace White House chair Jerome Powell, whose term expires in May.
Powell’s press conference will start at 6.30am AEDT, where every word will be scrutinized by markets.
The Fed’s decision to stand down the PAT will likely draw further criticism from Trump, who has attacked Powell for months for not cutting short-term rates faster. When the Fed lowers its key rate, it lowers borrowing costs for things like mortgages, car loans, and business loans, although these rates are also affected by market forces.
The move comes under unprecedented pressure from the Trump White House. Powell said on January 11 that the Fed had obtained a subpoena from the Justice Department as part of a criminal investigation into his congressional testimony. In an unusually blunt video statement, Powell said the sub-prime rates were an excuse to punish the Fed for not cutting rates to the maximum.
And last week, the Supreme Court upheld Trump’s attempt to fire Gov. Lisa Cook since last year over mortgage fraud allegations, which she denies. No president has fired a governor in the Fed’s 112-year history. The judges at oral argument leaned toward allowing him to stay in his job until the case is resolved.
At the same time, Trump has suggested he is close to naming a new Fed chair, to replace Powell when his term ends in May. The announcement could happen as soon as this week, though it has been delayed before.
Economists say the president’s efforts to pressure the Fed have backfired, as Republicans in the Senate voiced support for Powell and threatened to block Trump’s replacement chair.
More to come
A.P
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