2025 has already been a year of immense change for the world of markets—but high interest rates might be one factor that stays the same.
The Federal Reserve is set to unveil its latest monetary policy move Wednesday afternoon following the first FOMC meeting of the year. Jerome Powell and the rest of the central banking posse are largely expected to keep rates steady.
“There’s nothing in the data that compels the Fed to be in a hurry to cut rates. This is looking more like a pause and less like a skip,” explained Bankrate Chief Financial Analyst Greg McBride in a note today.
Last year, hot on the heels of decelerating inflation and a slowing labor market, the Fed finally lowered rates a total of 1% over three meetings in a row. Investors popped champagne and began celebrating, and the S&P 500 rose 4.6% between the first cut in mid-September through the end of the year.
But although inflation has decelerated from its peak, it's still hovering around 3%—above the Fed’s stated 2% target. The labor market that showed signs of slowing has actually remained historically healthy. To top it all off, President Trump’s proposed tariffs threaten to reignite inflation.
Turns out, it might be time to put away those champagne flutes for a while longer.
Trump vs the Fed
Economists think it’s unlikely the Federal Reserve will cut rates on Wednesday, and the market currently pegs the chances of rates staying flat at just over 97%. If inflation plateaus or rises when the next PCE reading comes out on Friday, the Fed might not move rates at its March meeting, either.
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While Powell is determined to keep the central bank ship on course, there’s a chance that Trump capsizes the whole thing.
Powell’s term as Fed chairman isn’t up until May 2026, and while the president has threatened to give Powell the boot in the past, Trump hasn’t mentioned Powell’s performance lately. That could change if he feels that the Fed isn’t cutting rates quickly enough to spur economic growth. After all, during his comments last week at Davos, the president said he will “demand” lower rates—something he isn’t supposed to be able to do. That's why some experts believe Powell will leave rates unchanged at this meeting not only to keep the economy on the right track, but to keep the peace with the White House.
The silver lining to all this drama? Your high-yield savings accounts, money market funds, and CDs aren’t out of style just yet.—LB