19 March 2025
If you are covering the news the Federal Reserve has left interest rates unchanged, please find below a comment from Lindsay James, investment strategist at Quilter:
“As was expected, the Federal Reserve has chosen to hold interest rates as it looks to navigate what has been a whirlwind two months of economic policy. Jerome Powell is flying somewhat blind given not only the extremity of the tariffs being announced by Donald Trump, but his willingness to U-turn at the last moment, making any attempt by businesses and the Fed to plan all but futile. Trump is desperate for rates to be cut but is likely to be left waiting given the need for calm heads in the current economic environment.
“The problem the US faces is that inflation remains a primary risk and is showing signs of consumer expectations becoming unanchored from the 2% target. Leading indicators of demand may be slowing in the US, but inflation persists and risks spiralling if the proposed economic policies continue. Trump’s election campaign focused hard on bringing inflation down, but this is unlikely in the short-term. This is happening at the same time as economic growth is expected to slow and the employment data looks marginally weaker. Indeed, the Federal Reserve themselves have cut its own GDP forecasts and expects higher inflation in the meantime, an unwanted mix for any economy let alone the biggest in the world.
“Jerome Powell avoids politics as far as he can, but investors will be hoping he offers some kind of reassurance that he is balancing obvious inflationary pressures with a watchful eye on employment. There have been early signs that employers are becoming more cautious, for instance showing a preference for part time employees at the expense of full time. Investors will be hoping to hear a reassuring tone however all the Fed can realistically do is acknowledge that there is increasing uncertainty on both sides of their dual mandate. Unless one side deteriorates faster than the other in the coming months, then the Fed is likely stuck in a holding pattern until the data becomes clearer.”
