As was widely expected, the U.S. Federal Reserve has held interest rates at current levels due to growing concerns over inflation.
The Federal Reserve kept its trendsetting Fed Funds Rate in its current target range of 4.25% to 4.50%.
Futures traders had anticipated that the U.S. central bank would leave interest rates unchanged, with the stock market having priced in the decision.
In its statement announcing the decision to hold interest rates at current levels, the Fed said that inflation is “somewhat elevated.”
Inflation in the U.S. is currently at an annualized rate of 2.9%, down from a peak of 9.1% in June 2022, but still above the central bank’s 2% target.
Earlier the same day (Jan. 29), the Bank of Canada lowered interest rates by 25-basis points, putting the country on a divergent monetary policy path from America.
The latest pause by the Fed comes after the central bank lowered interest rates three consecutive times, totaling a full percentage point, in the final months of 2024.
The rate pause also comes with the U.S. economy remaining strong. In the third quarter of last year, the U.S. economy grew an annualized 3.1%, accelerating from the previous quarter.
Futures traders quickly adjusted their expectations for further rate cuts by the Federal Reserve this year.
The CME FedWatch tool showed that markets are now pricing in a 31% chance of only one rate cut in 2025, higher than expectations earlier in the day on Jan. 29.
The U.S. Federal Reserve is next scheduled to decide on interest rates March 19.
