The announcement by the U.S. Federal Reserve that interest rates will not change was widely greeted by variations of the same message, which is that the Fed is waiting to get a read on the “new” economy that comes with a change in government, and whether it is headed towards inflation.
Here’s a sample of what is being said:
CNN Business: “[The decision]…shows that central bankers are waiting for evidence that inflation is headed toward their 2 per cent target — or that the economy is weakening more than expected. Those are the two outcomes that would put rate cuts back on the table.”
ABC News: “Fed Chair Jerome Powell faulted...tariffs for a ‘good part’ of recent inflation, advocating for a wait-and-see approach as the new administration’s policy changes take hold. Even as the Fed left its main policy lever unchanged, the central bank predicted weaker year-end economic growth and higher inflation than it had in a December forecast.”
CNBC: “Powell said the…forecasts for less economic growth and higher inflation in 2025 somewhat offset each other, explaining the fact that the forecast for rate cuts this year stayed at two. ‘At the December meeting, the median was two cuts. So you come in and you see, broadly speaking, weaker growth but higher inflation. And they kind of balance [each other] out.’”
FOX Business: “The Federal Open Market Committee, which guides the central bank's monetary policy moves, noted in its announcement that ‘[u]ncertainty around the economic outlook has increased”'and added it is focused on risks to both sides of its dual mandate to promote maximum employment and keep inflation at 2 per cent over the long-run.”
The FOMC was projecting two rate cuts of .25 per cent this year, two more next year and one in 2027. Now, the Chairman of the Federal Reserve is emphasizing the forecasts are “highly uncertain.” It’s generally accepted that if the implementation of tariffs causes inflation, the Federal Reserve will change direction and increase its interest rate.
While the interest rates south of the border have little direct effect on Canada, the U.S. economy impacts what happens north of the border. So, to that degree, it’s important for Canadians to keep an eye on such announcements.