Fed Expected to Hold Interest Rates Steady Amid Economic Growth

The Federal Reserve is likely to maintain interest rates in early 2025 to assess economic conditions, after reducing rates by 100 basis points in 2024 to bolster the economy. The labor market is stable, but inflation remains above target. Rate cuts may occur during mid and late 2025.


Devdiscourse News Desk | Updated: 29-01-2025 15:59 IST | Created: 29-01-2025 15:59 IST
Fed Expected to Hold Interest Rates Steady Amid Economic Growth
Federal Reserve Board logo (Photo-X/@federalreserve ). Image Credit: ANI
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The Federal Open Market Committee (FOMC) of the US Federal Reserve is anticipated to announce that interest rates will remain unchanged, according to a recent report by ICICI Bank.

This decision reflects a neutral stance on monetary policy as the Fed evaluates economic conditions at the start of 2025. The cautious approach follows a 100 basis points rate cut in 2024 aimed at stimulating economic activity.

The labor market showed signs of improvement, with consistent job creation and stable unemployment at the end of 2024. Initial fears of a job growth slowdown in early 2024 have subsided. Yet, despite slowing inflation, core inflation rates hover around 3%, exceeding the Fed's 2% target. The US economy is expanding at approximately 2.5%, justifying the current approach.

Speculation surrounds a possible rate cut in June 2025 by 25 basis points, with an additional reduction by the same margin expected by December. These adjustments could amount to a 50 basis points decrease over 2025, possibly followed by another 50 points in 2026.

Nevertheless, adjustments might be more gradual if fiscal policies like tax cuts expand, potentially boosting spending and inflation. Furthermore, immigration restrictions might sustain high wages, exacerbating inflationary challenges. The Fed's strategy might mirror its 2018 response to the trade war where it raised rates amidst uncertainties. A measured approach is expected to balance growth and inflation risks, with cautious steps toward rate cuts predicted later in the year.

(With inputs from agencies.)

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