Federal Reserve keeps rates unchanged; Waller joins Miran in dissenting in favor of rate cut
The US central bank held its policy rate steady at its January meeting.
The Federal Reserve held its policy rate at a range of 3.5% to 3.75% at its January meeting.
The decision to stand pat was effectively universally expected by both prediction markets and economists, as monetary policymakers inserted language into their December statement implying that they would not be in a hurry to reduce rates again and the unemployment rate fell by more than anticipated in December, dipping to 4.4%.
Fed officials removed the phrase that “downside risks to employment rose in recent months” from this statement, indicating that the December employment report and other data released in the intervening period have alleviated some of their worries about the labor market.
Stocks were little changed in the aftermath of the decision, but the SPDR S&P 500 ETF moved marginally into positive territory during the press conference.
Two monetary policymakers dissented, preferring a rate cut: Governor Stephen Miran and Governor Christopher Waller.
Miran’s dissension was viewed as a near lock, as he voted for more easing than the central bank has delivered at every meeting since being added to the Federal Open Market Committee. However, event contracts implied it was almost a coin flip as to whether more officials would join him in disagreeing with the majority decision. There was speculation that Governor Chris Waller would join Miran in dissenting in favor of a rate cut in order to bolster his potential to be named as Fed Chair Jay Powell’s successor. President Donald Trump has castigated the central bank for not lowering rates as much or as fast as he believes would be appropriate.
Looking ahead to March, event contracts imply that the odds of the Federal Reserve holding steady again rose to about 90% from roughly 83% ahead of this decision.
(Event contracts are offered through Robinhood Derivatives, LLC — probabilities referenced or sourced from KalshiEx LLC or ForecastEx LLC.)
During the press conference, Powell said that both the downside risks to employment and upside risks to inflation appear to have diminished, and struck an optimistic tone on the US economy.
Since the last meeting, there’s been a “clear improvement” in the economic outlook, he said, remarking that we’re starting off the year “on a firm footing.”
