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Fed Holds Benchmark Rate Steady, Ending Streak Of Cuts

The Federal Reserve pressed pause on its monetary easing cycle Wednesday. 

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Federal Reserve Chair Jerome Powell signaled the pause in rate cuts in December.

Members of the Federal Open Market Committee voted unanimously to leave the Fed’s benchmark interest rate unchanged for the first time since the central bank began cutting rates in September. 

“Recent indicators suggest that economic activity has continued to expand at a solid pace for 2024 as a whole,” Fed Chair Jerome Powell said at a press conference Wednesday. 

“With our policy stance significantly less restricted than it had been and the economy remaining strong, we do not need to be in a hurry to adjust our policy stance,” he continued.

The decision was widely expected after Powell signaled in December that the pace of rate cuts would slow in the face of economic data indicating the U.S. economy was remarkably resilient. 

Fed officials said the decision was driven largely by strong economic fundamentals. The Fed made minor adjustments to the language in its guidance released Wednesday. It said the unemployment rate had stabilized and that “labor conditions remain solid,” a shift from previous language that said that “labor market conditions have generally eased.”

Inflation remains “somewhat elevated,” according to the Fed, the same language the central bank used in December. Powell said the changes weren't meant to communicate any broad shift in the Fed’s perspective on the direction of inflation.

The decision Wednesday came despite President Donald Trump’s continued calls for a rate cut. Powell said the Fed’s decisions were made without political considerations and that he had not had any conversations with Trump about Wednesday's move.  

“This is no different than any other set of policy changes at the beginning of an administration,” he said. “We will patiently watch and understand and not be in a hurry to get to a place of understanding what our policy response should be.” 

Investors have adjusted their market expectations in recent months as macroeconomic data suggests interest rates are likely to remain elevated. Flat rates are unlikely to have much impact on debt availability in the near term, but investors are still taking solace in the overall direction of Fed policy.

“As long as we know we reached the top of the mountain,” said James Nelson, the head of Avison Young’s capital markets group for New York, New Jersey and Connecticut. “We just had three consecutive rate cuts, so it's all about the narrative.”

The Fed’s move Wednesday leaves the target range for the federal funds rate between 4.25% and 4.5%. At the start of the week, more than 99% of investors expected the Fed would pause its rate cuts this month, according to CME Group’s FedWatch tool.

Fed officials, charged with a dual mandate of controlling inflation and maximizing employment, have struggled to reach their target goal of 2% inflation. In December, the central bank revised its projections up and now predicts inflation will peak around 2.5% this year before beginning to edge down.  

“We're going to be focusing on seeing real progress on inflation or trying to really see some weakness in the labor market before we consider making adjustments,” Powell said.

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Rowhouses in Boston's Back Bay neighborhood

Powell said the Fed was seeing the pace of inflation cool, in large part because housing costs have moderated, although he conceded that the Fed had struggled to reach its 2% target. 

“Our eyes are telling us that our policy is having effects on the economy,” Powell said. “You can look at empirical models or theoretical models, but you really have to just look out the window and see how your policy is affecting the economy. And I think we see that it's having meaningful effects.”

Powell said the Fed was closely watching the corporate hiring rate as an early indicator for changes in the labor market. While the economy is largely resilient, low-income households have been the hardest hit by inflation and remain squeezed by elevated prices.

The shift to loosening rates this cycle hasn’t yet translated into large savings for borrowers looking at medium- and long-term debt. The yield on U.S. Treasury bonds with a 10-year term has moved in the opposite direction of the federal funds rate, rising roughly 100 basis points since Powell announced the first rate cut last year. 

“The economy is officially in a new interest rate and economic regime, marked by labor market tightness and consumer resilience,” Thomas LaSalvia, Moody’s head of commercial real estate economics, said in an email. “All eyes are now shifting away from Fed action and towards economic consequences of new administration policies.”

Powell acknowledged Wednesday that the federal funds rate has limited impact on long-term bond rates, and he suggested that mortgage rates could remain elevated and hold back activity in the housing market.

Still, brokerages expect transaction activity to improve significantly in 2025. Commercial real estate debt maturities are expected to top $1.5T by the end of this year, and a series of large transactions — including Blackstone’s $10B acquisition of Apartment Income REIT Corp. in April — has aided in price discovery and helped close the gap between buyers and sellers.  

Opportunistic buyers have become more active, and any distress in the market is being offset by the deployment of sidelined capital that investors raised looking for steep discounts, which failed to materialize at large volumes in this cycle, Nelson said.  

“The amount of dry powder is staggering,” he said. 

UPDATE, JAN. 29, 3:51 P.M. ET: This story has been updated with comments from Federal Reserve Chair Jerome Powell's press conference.