Know When to Hold ‘Em

The Federal Open Market Committee (FOMC) held interest rates steady at a range of 4.25-4.50% at their latest meeting, citing a stable employment picture and inflation that remains somewhat elevated. It was the first meeting without a change in rates since the Fed began lowering rates in September 2024.

It’s important to point out that investors had a lot on their minds already. Earlier in the week, developments regarding Chinese AI start-up DeepSeek caused volatility in U.S. tech stocks and left investors with questions surrounding the competitive landscape. Additionally, a few bellwether mega-cap companies (Meta, Microsoft, Tesla, Apple) are reporting earnings this week and will set the tone for tech earnings broadly.

All of these crosscurrents have already caused whiplash in markets, so the reaction to this FOMC statement was on the calmer side, even compared to other instances when the Fed didn’t move rates.

The market continues to expect roughly two rate cuts for all of 2025 and today’s meeting did not materially change that stance.

A Good Place

All of the anticipation that leads up to a Fed meeting can make us expect that things will change after the meeting, or that there will be some sort of material statement made that alters the course of markets.

That doesn’t need to be the case, and this month’s meeting was a clear example of that. Not much has changed in the economic data since the December meeting, and according to Chair Jerome Powell at this meeting, monetary policy is currently in a good place, as is the U.S. economy.

The labor market is in a much more balanced state than it was last year at this time and has not demonstrated the weakness many feared; in fact, it has strengthened in recent months by some metrics.

On the inflation front, there is still concern over upside risks to prices and the Fed has acknowledged that adjusting policy too quickly or too slowly can have negative effects on inflation and the economy. Given that the Fed has reduced the fed funds rate by 100 basis points since September, the current level still seems appropriate until and unless inflation comes down in a more meaningful way.

Below are the four main measures of inflation, showing the dramatic drop that has occurred since mid-2022, but also the plateau that has been hit over the last few months.

Sometimes doing nothing is the right answer.

Policy and Politics

Despite the many attempts by journalists to ask Powell about how the Fed will react to possible political pressure, or upcoming changes in political policies, the Chair made it clear that he would not respond to questions in that vein… leaving the room with an unquenched thirst for some sort of retort.

I believe that sentiment will continue. Markets and media are likely to keep speculating about how political pressure may influence monetary policy going forward (as they did during the last Trump administration). That in and of itself can drive market volatility between FOMC meetings and in reaction to any moves the Fed does make through the remainder of the year.

This meeting included a message of “steady as she goes, nothing to see here”. As the first meeting of 2025 and on the heels of a change in the White House, I welcome the relatively calm message and market reaction. Now we enter a long break until the next FOMC meeting on March 19 and are left to watch the data roll in. This kicks off a year when I believe fundamentals – rather than momentum and technicals – will run the show. Keep your eyes on the right ball.

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Photo Credit: iStock/William_Potter

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