Economic Stability Takes Center Stage
The Federal Reserve’s latest Open Market Committee meeting has sent a clear message: caution remains the name of the game. By maintaining the fed funds target rate at 4.25-4.50%, the central bank is signaling its ongoing concerns about inflation and the overall economy.
A Delicate Balance
After three consecutive rate cuts in late 2024, this non-decision marks a significant shift. The Fed is walking a tightrope, balancing the need to control inflation with the desire to support economic growth. While CPI inflation has declined significantly from its 2022 peak of over 9.0% to below 3.0%, it has stalled in its downward trend, failing to reach the central bank’s 2.0% target.
Economic Indicators Paint a Mixed Picture
On the one hand, the unemployment rate remains historically low, and GDP growth has outpaced the long-run average of 2.0% for nine of the past 10 quarters. This suggests that the economy is not yet in dire need of lower rates. On the other hand, the Fed is keenly aware of the potential impacts of upcoming policy changes related to trade, tariffs, immigration, fiscal stimulus, and regulations.
A Watchful Eye
As the Fed enters the new year, it will continue to closely monitor economic data, searching for signs of stability or instability. With its finger on the pulse of the economy, the central bank is poised to respond quickly to any changes in the landscape.
What’s Next?
Our forecast for 2025 remains bullish, but with a cautious tone. As the economy navigates the complexities of policy changes and global events, one thing is clear: the Fed will remain vigilant, ready to adapt to any shifts in the economic winds.
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