Fed Holds Rates Steady — Powell Signals No Cuts Before Q3 2025
Markets had priced in four cuts for 2025. Now they're down to two. Here's what the revised playbook looks like.
Decision Summary
At its January meeting, the Federal Open Market Committee (FOMC) voted unanimously to maintain the fed funds rate in the 5.25–5.50% target range. The statement represented a subtle but clear hawkish shift, removing previous language about "any additional policy firming."
"We're not confident yet that inflation is sustainably moving toward 2%. The last mile is proving harder than the first mile." — Jerome Powell, press conference
What Changed
The median committee projection (the "dot plot") now shows two 25bps cuts in 2025, down from four cuts projected at the September meeting. Markets have repriced accordingly, with fed funds futures implying the first cut arrives in July at earliest.
Before vs. After: | Metric | September Dots | January Dots | |--------|---------------|-------------| | 2025 cuts | 4 | 2 | | Year-end rate | 4.50% | 5.00% | | First cut | March | July |
Inflation Remains the Wildcard
Core PCE — the Fed's preferred inflation gauge — printed at 2.9% YoY in December, above the 2.7% consensus. Supercore (services ex-housing) is running at 3.5%, well above the Fed's 2% target. Until this component meaningfully declines, Powell has little political cover to cut.
Market Implications
Equities: A higher-for-longer environment is a headwind for high-multiple growth stocks. The Nasdaq underperformed the Dow by 2.3% in the week following the decision.
Bonds: The 10-year Treasury yield jumped to 4.68%, its highest level since November. Watch for 4.80% as the next key resistance.
Dollar: DXY rallied 0.8% as rate differentials widened versus European peers.
Gold: Counterintuitively rose 1.2% — a sign that geopolitical safe-haven demand is separate from rate dynamics.
This article is for informational purposes only and does not constitute financial advice.
Chief Economist & Analyst
Sarah specializes in macroeconomic policy, central bank dynamics, and fixed income markets. Previously at the IMF and Goldman Sachs Economic Research.