Fed hold rates steady, sees inflation as ‘elevated,’ as Powell declines comment on Trump

WASHINGTON (AP) — The Federal Reserve left its benchmark interest rate unchanged Wednesday after cutting it three times in a row last year, a sign of a more cautious approach as the Fed seeks to gauge where inflation is headed and what policies President Donald Trump may pursue.

In a statement, the Fed said the job market is “solid,” and noted that the unemployment rate “has stabilized at a low level in recent months.” The Fed also appeared to toughen its assessment of inflation, saying that it “remains somewhat elevated.” Both a healthier job market and more stubborn inflation typically would imply fewer Fed rate cuts in the coming months.

In a news conference Wednesday, Fed Chair Jerome Powell largely deflected questions about recent comments from President Trump, including one from last week, when Trump said he would lower oil prices and then “demand” lower rates. He also said he would speak with Powell about it.

“I’m not going to have any response or comment on whatever the president said,” Powell said. Asked if Trump had communicated his desire for lower rates directly to Powell, the Fed chair said he had “no contact.”

Not PARSE.LY: Federal Reserve System

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Regarding the Fed’s key rate, Powell conveyed a more deliberate approach, noting that the economy is mostly healthy — the unemployment rate is a low 4.1% and growth topped 3% at an annual rate in the fall.

“With ... the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” Powell said.

Asked about the potential impact of the sharp policy changes Trump has proposed regarding tariffs, immigration, tax cuts, and deregulation, Powell said Fed policymakers are “waiting to see which policies are enacted.”

“We don’t know what will happen,” he added. “We need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be.”

Kathy Bostjancic, chief economist at Nationwide Financial, said Powell’s comments suggest the Fed won’t cut rates again until the middle of this year.

“We are all in wait and see mode, including the Fed,” she said.

The Fed reduced its rate last year to 4.3% from 5.3%, in part out of concern that the job market was weakening. Hiring had slowed in the summer and the unemployment rate ticked up, leading Fed officials to approve an outsized half-point cut in September. Yet hiring rebounded last month and the unemployment rate declined slightly, to a low 4.1%.

Powell has said it is harder to gauge where inflation is headed, in part because of increased uncertainty around what policies Trump will adopt and how quickly they will affect the economy. Higher tariffs and tax cuts could push inflation higher, while deregulation could possibly reduce it.

The Fed typically keeps interest rates high to slow borrowing and spending and cool inflation.

In December, Fed officials signaled they may reduce their rate just twice more this year. Goldman Sachs economists believes those cuts won’t happen until June and December.

In November, inflation was just 2.4%, according to the Fed’s preferred measure, not far from its 2% target. But excluding the volatile food and energy categories, core prices rose a more painful 2.8% from a year earlier. The Fed pays close attention to core prices because they are often a better guide to inflation’s future path.

Powell said the Fed wants to see “real progress on inflation or ... some weakness in the labor market before we before we consider” making further cuts.

In a post to his Truth Social account late Wednesday, Trump criticized the Fed for failing to curtail inflation, saying he would do so by “unleashing American Energy production, slashing Regulation, rebalancing international Trade, and reigniting American Manufacturing.”

During the news conference, Powell was also asked about Trump’s executive orders intended to limit diversity, equity, and inclusion programs, which Powell has previously backed.

“As has been our practice over many administrations, we are working to align our policies with the executive orders as appropriate and consistent with applicable law,” he said.

Powell also addressed the Fed’s decision earlier this month to leave the Network for Greening the Financial System, an international group that sought to address how financial regulators and banks could address climate change. The Fed had joined the group in 2020.

Powell said the group’s goals had expanded to things like addressing biodiversity that were “way beyond” the Fed’s mission.

“I think that the the activities of the NGFS are not a good fit for the Fed, given our current mandate,” he said.

Most other central banks in developed countries are cutting their interest rates. The European Central Bank, for example, is widely expected to reduce borrowing costs at its next meeting on Thursday. The Bank of Canada said Wednesday it has also cut its rate, and the Bank of England is also expected to do so next month.

The Bank of Japan, however, is actually raising its rate from a rock-bottom level. Japan has finally experienced some inflation after decades of slower growth and bouts of deflation.

A Fed rate cut in March is still possible, though financial markets’ futures pricing puts the odds of that happening at under 20%.

As a result, American households and businesses are unlikely to see much relief from high borrowing costs anytime soon. The average rate on a 30-year mortgage slipped to just below 7% last week after rising for five straight weeks. The costs of borrowing money have remained high economywide even after the Fed reduced its benchmark rate.

That is because investors expect healthy economic growth and stubborn inflation will forestall future rate cuts. They recently bid up the 10-year Treasury above 4.80%, its highest level since 2023.

Powell acknowledged that higher rates have made it harder for many would-be homebuyers to afford a home, and said that would likely continue.

The stock and bond markets had muted reactions to the Fed’s decision, which was widely expected.

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Associated Press Writer Josh Boak contributed to this report.