FOMC Holds Rates; Powell Highlights Tariffs and Services Inflation — More Disinflation Ahead?
The Federal Reserve kept interest rates unchanged at its January meeting. In his press conference, Chair Jerome Powell explained the rationale: the U.S. economy remains strong, the current policy stance is appropriate, and the Fed has room to wait for more data before deciding on its next move.
Powell said monetary policy is still supporting progress toward the Fed’s two mandates: inflation moving down toward target and a healthy labor market. That said, he acknowledged areas of weakness—most notably the still-soft housing sector. On the risk of a U.S. government shutdown, Powell suggested the impact should be manageable this quarter.
On the labor market, Powell struck a more “calm” tone. Conditions appear to be stabilizing, even though job growth has slowed. He noted this slowdown reflects not only softer labor demand, but also a decline in labor supply (the labor force).
On inflation, Powell emphasized that inflation remains above target. He cited core PCE inflation for December at around 3%, while noting that the disinflation process is still underway—especially within the services sector.
Markets were especially focused on guidance for future policy. Powell said rates are currently in a reasonable neutral range (even toward the upper end), and the Fed is well positioned to assess how far and when additional adjustments may be needed. He stressed that no path is “locked in”: decisions will be made meeting by meeting, guided by incoming data.
Powell also addressed the sources of inflation pressure, arguing they are largely tied to tariffs (cost-side factors) rather than overheating demand. He expects tariff-driven price effects on goods to peak and then ease later this year. On risks to the Fed’s mandate, Powell said both inflation risks and labor-market downside risks are declining, though not yet fully balanced. He added that short-term inflation expectations have “returned to normal,” while longer-term expectations continue to signal confidence that inflation will return to 2%.
FOMC Decision: Rates Steady; Two Members Vote for a Cut
In its official statement, the Fed maintained the federal funds target range at 3.50%–3.75%, in line with market expectations. The FOMC noted that growth remains solid, but uncertainty around the outlook is still elevated. Inflation remains somewhat high, while the labor market is showing signs of stabilization—even though job gains remain relatively modest.
The policy vote was 10–2. Two officials—Miran and Waller—dissented and supported a 25-basis-point cut, while the majority favored holding rates and waiting for clearer confirmation from upcoming inflation and employment data.
Source: Newsmaker.id
