Federal Reserve holds interest rates steady, cites 'solid' job market and persistent inflation

The Federal Reserve decided to keep its benchmark interest rate unchanged on Wednesday, following three consecutive rate cuts last year. The move signals a cautious stance as policymakers assess the trajectory of inflation and the potential impact of President Donald Trump’s economic policies.

The central bank had lowered rates in 2024 from 5.3% to 4.3%, partly due to concerns about a weakening labor market. Hiring had slowed during the summer, and a rise in the unemployment rate prompted Fed officials to implement a half-point rate cut in September.

However, job growth rebounded last month, with the unemployment rate edging down to 4.1%. In its latest statement, the Fed upgraded its outlook on employment, describing the job market as “solid” and noting that the unemployment rate had “stabilised at a low level in recent months.”

The Fed also adopted a firmer tone on inflation, stating that it “remains somewhat elevated.” A strong labor market combined with persistent inflation could mean that further rate cuts are unlikely in the near term.

Commenting on the Fed’s stance, Madhavi Arora, Chief Economist at Emkay Global Financial Services, said:

"With the Fed’s action largely in price, elsewhere across the DM there has been easing. We are also seeing some key EMs cutting or on their way to cutting rates. FX and rates markets remain calm, giving wiggle room to EMs. With the RBI now turning more judicious on its INR defense, we think the policy trilemma could tilt more toward letting the INR find its equilibrium to some extent and provide some policy flexibility to the RBI on rate settings in general. This opens up space for a Feb’25 repo cut, with more liquidity measures still needed after the recent announcement of Rs 1.5 trillion worth of liquidity infusion."

The central bank’s future decisions will depend on economic data and developments in fiscal policy.