The Federal Open Market Committee (FOMC) convened on January 28-29, 2025, to review economic conditions, financial markets, and monetary policy. Key takeaways from the meeting include:
- Monetary Policy & Interest Rates
• The FOMC maintained the federal funds rate at 4.25%–4.50%, emphasizing a data-driven approach for future changes.
• Members agreed that inflation remains somewhat elevated but has significantly eased over the past two years.
• The Committee reaffirmed its 2% inflation target while noting that progress toward that goal has slowed.
• Members expressed a need for additional evidence of continued disinflation before considering rate cuts.
• The balance sheet runoff (reducing Fed holdings of Treasury and mortgage-backed securities) will continue.
2. Economic Conditions & Outlook
• GDP Growth: The U.S. economy grew at a solid pace in 2024, supported by strong consumer spending.
• Labor Market: Unemployment remains low at 4.1%, with stable payroll gains.
• Inflation:
• PCE Inflation: 2.4% as of November 2024.
• Core PCE Inflation: 2.8% in November, projected at 2.6% for December.
• CPI Inflation: 2.9% in December 2024, down from the previous year.
• The Committee expects inflation to gradually return to 2% by 2027 but acknowledged risks from trade policies, geopolitical factors, and consumer demand.
3. Financial Markets & Open Market Operations
• Treasury yields rose by 15–20 basis points during the intermeeting period.
• The federal funds rate path remained stable, with expectations of a single quarter-point rate cut in 2025.
• The dollar strengthened slightly, while corporate credit spreads remained tight.
• Financial conditions tightened, with mortgage and corporate bond yields rising.
4. Financial Stability & Risks
• Asset valuations remain high, except for commercial real estate (CRE), which has faced price declines and deteriorating credit conditions.
• The banking sector remains stable, but some institutions are vulnerable to rising long-term interest rates.
• Business and household debt are moderate, though credit tightening continues for lower-credit-score borrowers.
5. Key Policy Actions
• The FOMC reaffirmed its commitment to maximum employment and 2% inflation.
• Future policy decisions will depend on incoming data, economic outlook, and balance of risks.
• No members dissented from the policy decision.
Conclusion
The FOMC sees moderate economic growth with stable employment and slightly elevated inflation. While the current monetary policy stance remains restrictive, the Fed is closely monitoring inflation trends before making further rate adjustments. The balance sheet runoff continues, and financial stability remains a key concern, especially in commercial real estate and banking.
The next FOMC meeting is scheduled for March 18-19, 2025.
Follow the link to see the full FOMC minutes.
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