Federal Reserve Keeps Key Interest Rate Unchanged After Three Consecutive Cuts

In its first policy decision after Donald Trump’s return as the President of the United States and after three consecutive rate reductions amounting to a cumulative 1%, the Federal Reserve decided to keep its overnight borrowing rate unchanged at 4.25% to 4.5% on Wednesday.

This is the first Fed policy decision of 2025. Wednesday’s decision aligns with what was widely anticipated by traders.

The central bank observed that inflation remains somewhat elevated, the unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid.

This shows that the Fed is still concerned about price rises and highlights that the labor market’s strength doesn’t help the case for bringing down rates.

Notably, December’s consumer inflation was lower than expected. According to the U.S. Bureau of Labor Statistics, the Consumer Price Index increased 0.4% on a seasonally adjusted basis in December after rising 0.3% in November versus an estimated 0.3%. 

Over the last 12 months, the index increased 2.9% before seasonal adjustment, which is in line with market estimates.

Core CPI, which excludes food and energy, rose 0.2% in December after increasing 0.3% each of the previous four months. The index rose 3.2% over the last 12 months, lower than an expected 3.3% rise.

Following the FOMC policy release, the SPDR S&P 500 ETF Trust (SPY) traded 0.76% lower, while the Invesco QQQ Trust, Series 1 (QQQ) fell 0.74%.

However, retail sentiment on Stocktwits trended in the ‘bullish’ territories for both these ETFs.

The SPY has gained over 2.5% this year, while QQQ has risen over 1.4% during this period.

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