Following a series of rate cuts in September, November, and December, the Federal Reserve held rates steady, maintaining its benchmark Federal Funds Rate between 4.25% and 4.5%. This pause on further cuts was expected and the vote was unanimous.
When the Federal Reserve raises or cuts rates, they are adjusting the Fed Funds Rate – a short-term, overnight rate that banks use for interbank lending. This benchmark rate serves as the foundation for all other interest rates, though it is not directly tied to mortgage rates or long-term rates.
What’s the bottom line?
The Fed began aggressively raising the Fed Funds Rate in 2022 to combat surging post-pandemicinflation. However, they started cutting last September due to moderating inflation and rising unemployment. The Fed’s decisionto pause further rate cuts last week was partly due to slowing progress towards their 2% inflation target. After the meeting, Fed Chair Jerome Powell emphasized that the Fed does “not need to be in a hurry to adjust our policy stance.” Future decisions regarding rate cuts will heavily depend on upcoming labor and inflation data.