Christopher Rugaber
The Federal Reserve pushed the pause button on its interest rate cuts on Wednesday, leaving its key rate unchanged at about 3.6 per cent after lowering it three times last year.
The central bank said in a statement that there are signs the job market has stabilised while it also said growth was “solid,” an upgrade from last month’s characterisation as “modest.”
With the economy growing at a healthy pace and no signs of deterioration in hiring, Fed officials likely see little reason to rush any further rate cuts. While most policymakers do expect to reduce borrowing costs further this year, many want to see evidence that stubbornly-elevated inflation is moving closer to the central bank’s target of 2 per cent. According to the Fed’s preferred measure, inflation was 2.8 per cent in November, slightly higher than a year ago.
Two officials dissented from the decision, with Governors Stephen Miran and Christopher Waller preferring another quarter-point reduction. President Donald Trump appointed Miran in September, while Waller is under consideration by the White House to replace Chair Jerome Powell, whose term ends in May.
Powell’s press conference starts at 6.30am AEDT, where every word will be scrutinised by markets.
The Fed’s decision to stand pat will likely fuel further criticism from Trump, who has assailed Powell for months for not sharply cutting short-term rates. When the Fed reduces its key rate, it tends to lower borrowing costs for things like mortgages, car loans, and business borrowing, though those rates are also influenced by market forces.
The move comes in the shadow of unprecedented pressure from the Trump White House. Powell said on January 11 that the Fed had received subpoenas from the Justice Department as part of a criminal investigation into his congressional testimony about a $US2.5 billion building renovation. Powell in an unusually blunt video statement said the subpoenas were a pretext to punish the Fed for not cutting rates more quickly.
And last week, the Supreme Court took up Trump’s attempt from last year to fire Fed governor Lisa Cook over allegations of mortgage fraud, which she denies. No president has fired a governor in the Fed’s 112-year history. The justices at an oral argument appeared to be leaning toward allowing her to stay in her job until the case is resolved.
At the same time, Trump has suggested he is close to naming a new Fed Chair, to replace Powell once his term ends in May. The announcement could come as soon as this week, though it has been delayed before.
The president’s efforts to pressure the Fed may have backfired, economists say, as Republicans in the Senate voiced support for Powell and threatened to block Trump’s replacement chair.
More to come
AP
The Business Briefing newsletter delivers major stories, exclusive coverage and expert opinion. Sign up to get it every weekday morning.
