Fed declines to cut rates, lowers economic growth forecast for 2025

WASHINGTON (Gray DC) - The Federal Reserve said the labor market remains strong, and the U.S. continues making progress on lowering inflation, but the agency has cut its forecast for economic growth.

“Recent indications, however, have pointed to a moderation in consumer spending following the rapid growth seen over the second half of 2024,” Fed Chairman Jerome Powell said. “Surveys of households point to heightened uncertainty about the economic outlook.”

Powell says maintaining the current rate is the best way to balance employment and inflation.

Moody’s economist Matt Colyar said the choice not to cut interest rates is no surprise, as cuts can increase inflation.

“Inflation remains a bit sturdier than it had, at least through most of 2024,” Colyar said.

Colyar said the Fed is in a difficult position amid fears of both inflation and a potential decrease in economic growth because they require different policies.

“If it’s an inflationary story, you have to lift rates,” he said. “If it’s slumping growth, we’ve got to stimulate the economy, then you lower rates. They need to split hairs.”

Powell said he wants to separate the noise from the actual economic outcome on Trump policy and is closely monitoring four major policy areas moving forward.

“Trade, immigration, fiscal policy, and regulation,” Powell said. “It is the net effect of these policy changes that will matter for the economy and for the path of monetary policy.”

Powell said he anticipates two separate rate cuts in 2025.