At this year’s first FOMC meeting, interest rates will be frozen

Employment and price risk mitigation
Decided to freeze rates despite Trump’s opposition
As if he would maintain interest rates until he leaves office in May
Advice that “Don’t be swayed by politics”

Jerome Powell, chairman of the U.S. Federal Reserve (Fed), answers questions during a press conference at the Fed headquarters in Washington, D.C. on the 28th (local time). [UPI = Yonhap News] 사진 확대

Jerome Powell, chairman of the U.S. Federal Reserve (Fed), answers questions during a press conference at the Fed headquarters in Washington, D.C. on the 28th (local time). [UPI = Yonhap News]

The U.S. central bank’s Federal Reserve System (Fed) froze the benchmark interest rate and drew a line on further cuts as expected at the Federal Open Market Committee (FOMC) for the first time this year. Until Fed Chairman Jerome Powell leaves office in May, a freeze is expected based on optimism about the U.S. economy.

On the 28th (local time), the Fed held a FOMC meeting and decided to keep its key interest rate at the current 3.5% to 3.75%. The Fed cut interest rates for the first time in nine months in September last year and then made three consecutive cuts through October and December. At this FOMC, Stephen Myron and Christopher Waller, directors of pro-(親) Donald Trump, voted against cutting interest rates by 0.25 percentage points.

Powell said, “There is still tension between employment and inflation, but the risk of downward employment and inflation has decreased to some extent,” adding, “Since we cut interest rates three times, it is time to look at the data.” This is interpreted as putting weight on freezing the benchmark interest rate for the time being.

On this day, the Fed announced in its policy decision that the U.S. economy is stabilizing. In its decision in December last year, it predicted that the U.S. economic growth was “Moderate,” but this time, it was evaluated as “Solid” and used a positive expression. In fact, the GDP growth rate in the third quarter of last year was 4.4% on an annualized basis compared to the previous quarter. It also removed the phrase “downside risk to employment has risen in recent months” from the decision in December last year.

Regarding the timing of the resumption of interest rate cuts, Powell said, “We expect tariffs to hit their highest levels this year affecting commodity inflation,” adding, “If that happens, we will consider easing monetary policy.” In fact, prices remain in the 2% range despite concerns over inflation from tariffs, but are still above the Fed’s 2% target. “We need to keep an eye on inflation and not declare an early victory,” Powell said.

In fact, the additional rate cut seems to be in the hands of the next chairman. The replacement of four new Fed members from this meeting could also have an impact. Jed Ellerbrook, manager of Argent Capital, predicted, “The Fed will freeze interest rates until May, when Powell’s term ends.” According to the Chicago Mercantile Exchange (CME) FedWatch, the probability of freezing interest rates in March and April of this year also reaches 70 to 80%, respectively.

Trends in U.S. benchmark interest rates 사진 확대

Trends in U.S. benchmark interest rates

Earlier in December last year, at the FOMC, 12 out of a total of 19 Fed members predicted that this year’s rate cut would be only once. The market predicts that there will be two rate cuts in the second half of this year.

Like the FOMC in December last year, Powell drew a line on the possibility of a rate hike again this time. “In the basic scenario for Fed members, we don’t have a rate hike in mind next time,” he said.

Regarding the recent falling dollar and soaring gold prices, Powell said, “We are monitoring the rise in gold prices, but we are not agitated,” adding, “It is not a loss of confidence in the dollar.”

On the other hand, when asked about what he would say to his successor, Powell said, “I want to tell you not to get involved with elected officials,” and added, “Don’t be swayed by politics.” Analysts say that he may have indirectly expressed his dissatisfaction with President Donald Trump as he has been in intense conflict over interest rate cuts.

The next chairman, who will carry all kinds of controversies surrounding the Fed, including interest rate cuts and central bank independence, is still in the fog. On the same day, Treasury Secretary Scott Bessant told CNBC, “We are choosing among four excellent candidates.”

White House National Economic Council (NEC) Chairman Kevin Hastt was a strong candidate, but recently, Rick Reader, Chief Investment Officer of Global Bond at asset management firm BlackRock, has emerged as a major candidate. The Wall Street Journal (WSJ) also pointed out that all four candidates for chairman, including Fed director Christopher Waller and former Fed director Kevin Wash, have clear limitations from President Trump’s perspective.

Meanwhile, Deputy Prime Minister and Minister of Finance and Economy Koo Yoon-chul presided over a joint expansion macroeconomic and financial meeting of related organizations at the Seoul Government Complex on the morning of the 29th (Korea Standard Time), saying, “The domestic financial market is generally stable.” Deputy Prime Minister Koo, Bank of Korea Governor Lee Chang-yong, Financial Services Commission Chairman Lee Eok-won and Financial Supervisory Service Chairman Lee Chan-jin attended the meeting to examine global financial market trends and the impact of the U.S. interest rate freeze on domestic financial and foreign exchange markets and discuss countermeasures.