Fed On Pause until Policy Fog Clears
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Global Economic Outlook

Fed On Pause until Policy Fog Clears

29 January 2025 / Brief

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By leaving the policy rate unchanged and Chair Powell explicitly mentioning the Fed is waiting to see the details of new policies, the FOMC signaled readiness to remain patient to assess the impact of changes in the policy landscape on the economic outlook. The latest Fed communication reaffirms our expectations that the central bank will stay on hold throughout H1 2025.

By leaving the policy rate unchanged and Chair Powell explicitly mentioning the Fed is waiting to see the details of new policies, the FOMC signaled readiness to remain patient to assess the impact of changes in the policy landscape on the economic outlook. The latest Fed communication reaffirms our expectations that the central bank will stay on hold throughout H1 2025.

Figure 1. Fed leaves rates unchanged in January 2025

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Sources: Federal Reserve Board and The Conference Board projections (light blue line) and approximations for Fed policy path (red line).

Trusted Insights for What’s Ahead®

  • We expect the Fed to stay on hold throughout H1 2025 and resume cuts in the latter half of this year as growth slows closer to potential and inflation returns to its downward trajectory.
  • The Fed is unlikely to reach the long-run neutral rate target range of 3.00-3.25% until Q2 2026. We project the Fed will cut rates by 25bp at the July, September, and December meetings.
  • The magnitude of individual actions and the pacing of future rate cuts could be altered by the realization of either upside or downside ri

Author

Yelena Shulyatyeva, CFA

Yelena Shulyatyeva, CFA

Senior US Economist

Read BioYelena Shulyatyeva, CFA

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