The Federal Reserve is expected to keep interest rates unchanged at its January Federal Open Market Committee (FOMC) meeting. The meeting, held over two days (28-29 January), will conclude with Fed Chair Jerome Powell announcing the decision at 2 pm ET today.
Investors will closely watch for Powell’s remarks on inflation and the future direction of interest rates. The January FOMC meeting holds particular significance as it is the first Fed meeting after President Donald Trump’s return to office for a second term. It remains to be seen whether Jerome Powell will surprise markets by aligning with Trump’s call for a rate cut.
In his first week back, Trump said that he seeks to lower Fed interest rates by unleashing energy production and would speak to the US Federal Reserve if needed. "I'll demand that interest rates drop immediately," he told the World Economic Forum in Davos, Switzerland, in a virtual address last week.
Ahead of the meeting, the general market consensus indicates a pause in the ongoing rate cuts. In the December 2024 meeting, the Fed reduced the rate by 25 basis points (bps) to its current range of 4.25% to 4.5%. After raising its key interest rate to a 23-year high of 5.25% to 5.5% to combat the inflation surge triggered by the pandemic, the Federal Reserve has since reduced the rate starting in September. This comes as inflation has eased from a peak of 9.1% in mid-2022 to 2.9% in December, though it remains above the Fed's target of 2%.
Inflation has remained persistently high in recent times, although a core measure, which excludes food and energy and is closely monitored by the Fed due to its reflection of more sustainable trends, saw a slight decrease in December.
Here’s what the analysts expect:
Kranthi Bathini, Director at Wealthmills Securities, says the Federal Reserve is likely to maintain the status quo this time, with the market closely watching its commentary on inflation and future rate cuts. However, any rate cut at this stage would certainly be an unexpected and positive development for the market.
Jigar Trivedi, senior analyst at Reliance Securities, suggests the US Fed is widely expected to keep interest rates unchanged, despite President Trump’s calls for an immediate reduction in borrowing costs.
“Market participants will be closely watching Fed Chair Jerome Powell’s comments and the central bank’s inflation outlook for clues on the timing of the next rate cut. Traders are also anticipating the release of the PCE price index report on Friday, the Fed's preferred inflation gauge,” he said.
In addition, Treasury yields faced pressure earlier this week as concerns over Chinese startup DeepSeek’s challenge to US AI dominance prompted a wave of risk-off trades. Investors are also factoring in Trump’s escalating tariff threats, with the 1 February deadline for the first round of tariffs targeting Mexico, Canada and China approaching.
