Fed holds off on rate cuts after hot jobs, inflation data

A committee of Federal Reserve officials voted Wednesday to keep interest rates at a 22-year high after unexpectedly high job gains and inflation delayed likely plans for rate cuts.

The Federal Open Market Committee (FOMC), the panel of Fed officials responsible for setting borrowing costs, voted to keep its baseline interest rate at the range of 5.25 to 5.5 percent set last June. The FOMC voted unanimously to hold rates steady.

The central bank is not yet confident that inflation, which has plummeted after the Fed began hiking rates in March 2022, is on pace to reach its goal of a 2 percent annual rate.

After peaking at 40-year high of 9.1 percent in June 2022, as measured by the Labor Department's consumer price index (CPI), annual inflation has eased significantly, falling to 3.1 percent in January. However, inflation ticked back up slightly to 3.2 percent last month.

Meanwhile, the job market has continued to defy expectations. The U.S. economy added 275,000 jobs last month, on top of significant gains in December and January, while the unemployment rate remained below 4 percent.

The jobless rate has stayed below 4 percent consistently for the last two years, marking the longest sub-4 percent streak since the 1960s.

Flatlining inflation and strong job growth foiled previous hopes that the Fed would make its first rate cut in March. Economists are now largely looking to the central bank’s June meeting for a potential rate cut.

After holding interest rates steady throughout the end of 2023, Fed officials signaled that they were open to cutting rates in the coming year. All but three officials said in their December projections that they anticipated two rate cuts in 2024, while the largest group anticipated three.

The politically independent Fed has taken heat from both sides of the aisle for its handling of interest rates and inflation.

Members of the Congressional Progressive Caucus sent Fed Chair Jerome Powell a letter on Monday calling on the central bank to cut interest rates at the March meeting, even as the central bank was widely expected to keep interest rates steady.

“With core inflation already having come into line with the Federal Reserve’s target, today’s excessively contractionary monetary policy needlessly worsens housing market imbalances and the unaffordability of home ownership, creates risks for banking stability, and could threaten the achievements of strong employment and wage growth and its attendant reductions in economic and racial inequalities,” the lawmakers wrote.

Last month, former President Trump accused Powell — a lifelong Republican that Trump himself nominated for the job in 2017 — of being “political.” Trump went on to suggest Powell may consider cutting rates to help Democrats during the 2024 election.

“I think he’s going to do something to probably help the Democrats, I think, if he lowers interest rates,” Trump said. “It looks to me like he’s trying to lower interest rates for the sake of maybe getting people elected, I don’t know.”

Powell has repeatedly said partisan politics won’t influence the central bank as it attempts to bring the economy in for a rare “soft landing,” the technical term for leveraging policy tools including rate hikes to bring down prices without triggering a recession.

But the Fed’s interest rates could play a role in the upcoming election in which voters have ranked among their top concerns the state of the economy, which has had an astounding turnaround from a year ago when many economists were forecasting a recession.