The Fed is trying to pause rate reduction. This is the reason.

At the final rally of the 2024 federal preparation system, Jerome H. Powell announced that it has started a “new stage” on how the US Central Bank sets interest rates.

Since the Fed was planning to “move carefully” in the future reduction, Mr. Powell told the reporters at the time, and there was room to patience the recession that the authorities were imminent and the slight signs of the prolonged inflation pressure. He said he was thinking. On Wednesday, the Fed is planning to implement the approach, and only after the start of the reduction of borrowing costs in September, the further reduction will be paused.

Currently, the question that is very close to Wall Street and Washington is how long the Fed will be held.

President Trump is likely to be considered too long for President Trump, who claims to understand interest rates better than the Fed officials, in the first week of taking office. Talking to the World Economic Forum in Davos, Switzerland, he said, as his economic policy drops the price of oil, “requires an interest rate to fall soon.”

However, for policy proprietors, economists, investors, and former Fed officials, the timeline looks very different if they follow their actions.

“There is no persuasive reason to cut,” said Loretta Mester, who retired from the Cleveland FED president in June. “I would like to see the convincing evidence that inflation has been resumed, but I don't think there is now.”

The central bank officials have built the basics of this moment for months. After providing a shock and way half -point cut in September, the FRB piloted what was described as a “re -adjustment” stage after being concerned that the labor market would be weak. In November and December, it reflects the fact that interest rates have been reduced with more traditional quarter points, and inflation is still high, but borrowing costs have been sufficiently relaxed.

Currently, the rate is set from 4.25 % to 4.5 percent, and has recently reached peak.

However, the decision to reduce the price again in December was a close call. One Fed authorities voted against it, and the record of the meeting announced earlier this month is working on recent data, and to regain inflation to 2 % of the FRB. It was indicated that the progress was stagnant.

The Fed officials had to fight between Trump's election and his illusion of the earthquake in the economic policy when he returned to his imminent White House.

Compared to the predictions announced three months ago, policy proprieters raised their expectations for inflation between 2025 and 2026, so the forecast of interest rate reduction in 2025 was only half the point in December. Half to half to half.

For some officials, the shift has adopted the assumptions of what other Trump terms bring. Others have adjusted the predictions based on incoming data only, and emphasizes whether the Fed policy settings are adjusted according to the current situation.

Regardless of the reason, “Almost all participants have determined that the benefits of inflation have increased,” he said for a few minutes.

The data reported since the turn of this year has relieved some concerns, but has not completely excluded. The overall inflation measured by the consumer price index rose to 2.9 % more than expected in December compared to the same time last year. However, it was more encouraging to see the background beyond the wider gauge, but it is a “core” scale that confirms that the fundamental trend is slow and the fuel price is deprived. 。

The growth of employment remained surprisingly strong, saying that the economist said that the company had regained steam after the summer recession.

The yield of government bonds that support economic borrowing has risen rapidly since November. It reflects some of the expectations for the economic outlook and the amount that the Fed can lower interest rates. Some authorities argue that this will help the central bank's efforts to suppress the activities of companies and households, which depends on how much higher borrowing costs will be maintained.

“The one -year -old junior high school was that the economy could tolerate a slightly higher interest rate than the Fed expected by the Fed,” said Joseph Ganon, a former senior Fed staff. He believes that the level of interest rates (called the “neutral” rate), which does not suppress growing, has risen to about 3.5 % compared to the level before the pandemic. As of December, most officials predict about 3 % in the long term.

The big wildcard is Trump, and he will track him as much as he promises his campaign. He has already signed a large -scale order aimed at ending the crisis of living expenses, which has been furious since the pandemic pandemic, who is wondering how effective his energy -centered approach is. Masu. He threatened tariffs on Colombia, swearing to impose taxes from the United States's largest trading partner, Canada, Mexico and China.

Economists hope that such policies increase the price of Americans. The question is whether they will cause a limited increase in consumers or kick off the continuous round of the federal government that the federal government needs to act.

It will mark his first term from his first term that Trump's limited tariffs did not lead to a rising price. The transcription of the Fed Conference from that period was mostly surprising about the impact on inflation, but the policy has caused sufficient concerns about growth in order to reduce the central bank by 0.75 %.

“At this point, applying old traditional wisdom to see through the supply shock is dangerous,” said Karen Dynan, a professor of Harvard University, the Ministry of Finance's Chief Economist. 。 For this inflation. Americans' expectations about how inflation will evolve, despite the recent increase, are more or less suppressed, but Dynan should not think that this situation should be “natural.” I mentioned.

“If the tariff comes to a high tariff and the expulsion of the country is bitten more than expected, you can imagine that inflation will return, and it may be paused all year round.” Gan Young, currently in Peterson, added. International Economic Research Institute.

The bar for additional interest rates seems to have risen against this background. Federal Fund Total Market Traders expect the Fed to reduce the Fed twice this year from June. To be cut faster than the point, like March, you need specific evidence rather than a lower inflation rate.

Donald Corn, a former Vice -chairman of the Fed, said that the officials needed to be risky that inflation was probably not “crystallized.”

“As long as the economy is resilient, there are cases in which these things are deployed and what the effect is,” he said.