3 Takeaways from the Fed Meeting

Market Musings 1/29/2025

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3 Takeaways from the January Fed Meeting

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As expected, the Fed held rates flat, but investors were focused when and what will it take for them to resume #RateCuts.

So, let’s go through some of the takeaways…

First, #LaborMarkets.

It seems the Fed was more concerned with weakening #LaborMarkets in the second half of last year. That probably was a big factor in the quick 100 bps #RateCuts in the final three meetings of the year.

However, the Fed noted that unemployment has stabilized since and and more in balance with its inflation mandate now.

Which leads us to inflation…

The Fed is concerned with recent #Inflation progress stalling. As of the November PCE, annual inflation is currently at 2.8%. (We’ll get new Dec PCE data on Friday.)

We’ve made tremendous #Inflation progress from 5.6%, the recent peak in 2022. However, the target rate is 2% and we’ve been stuck in the high 2% range for almost a year since last February. So with jobs in a better place, the Fed is looking to take a more wait and see approach for additional #RateCuts.

Of note, Powell mentioned a focus on Y/Y improvement to avoid potential seasonal impact. Market optimism throughout last year had been focused on smaller 3-month/6-month annualized run-rate. The Y/Y comment may indicate a longer evaluation period is needed to resume #RateCuts.

And finally, uncertainty.

With the change in the political environment, there a number of policy changes that could impact the #Goldilocks economic soft landing, #LaborMarkets and #Inflation. Powell acknowledged potential impact including from #Tariffs and immigration changes. However, the Fed seems to be taking a wait and see approach with this too.

Powell specifically mentioned that policy changes would likely have a more short-term impact. To us, it sounds a lot like the “transient” inflation attitude from the pandemic which they were slow to act and so their current forecast may potentially exclude any policy impact.

So we could definitely see a lot more volatility as market and investors re-forecast the Fed #RateCuts expectations on new policy developments.

Overall, the meeting went as expected－just a little hawkish.

Powell essentially ruled out a March rate cut, but markets are still looking for two this year with one around May/June and the other towards the end of the year.

We can see investors looking towards the December PCE on Friday and January CPI and PPI mid-February as potential next catalysts for #RateCuts.