As widely expected, the Fed kept policy unchanged today with a 4.25 to 4.5% target rate. The decision was unanimous among the new set of voters for 2025. The guidance language was left unchanged as anticipated, and Chair Powell argued that both the economy and policy are in a good place now. With risks balanced and policy still seen as restrictive, Powell repeatedly stressed that the FOMC was in no hurry.

At the same time, he reiterated a key asymmetry: if inflation remains firm instead of the gradual (and bumpy) easing the Committee expects, they could keep policy on hold at current levels for longer; if there were signs of an undesired weakening in the labor market, they could ease rates further. These two points align well with our expectation for the Fed to remain on hold for upcoming meetings, and then to normalize policy somewhat further later this year.

The statement updated the discussion of the recent data flow to note solid growth and employment, with inflation remaining elevated. This assessment arguably helped to motivate the decision to hold rates steady. At the press conference, Powell insisted that there was no deeper message from dropping the December assessment that inflation “has made progress toward the Committee’s 2% objective.” He claimed that signs finally point to rental inflation — which has been a source of persistently elevated inflation — coming down more steadily, and said that the past few monthly core PCE prints have been encouraging and consistent with converging toward target. When asked about the potential impacts of higher tariffs or immigration restrictions on inflation, he noted that it was too soon to make assessments about potential policies, and that the Fed would be patient and wait for more information.

While a large number of questions at the press conference had a political or policy angle to them, Powell unsurprisingly did not engage. The one notable exception, consistent with earlier remarks, was his assurance that the Fed would remain independent and act in the best interest of the public.

Powell also noted that the Committee had begun the process for its five-year framework review at this meeting, with a goal toward being able to conclude the review by the summer. While he did not provide any substantive details on the topics discussed at this meeting, he again noted that the 2% inflation target would not be debated.

Under questioning, Powell stated that it has served the Fed well over the years, remains an international standard, and stressed there was especially no appetite to consider a change while inflation was still running above it. He also defended aspects of the Fed’s flexible average inflation targeting approach, arguing it was not a factor in the Fed’s assessment of transitory inflation or its initially slow policy response.

Finally, there were no announcements made about balance sheet policy. When asked during the Q&A Powell stated that the indicators the Fed tracks suggest reserves remain abundant; he also noted that the funds rate has been stable. Given an expectation that these conditions are likely to continue for a time, we shift our forecast for the conclusion of the current QT policy from the end of 1Q to the end of 3Q of this year, with symmetric risks around that date.