Federal Reserve Holds Steady on Interest Rates
As anticipated, the U.S. Federal Reserve has decided to maintain its benchmark federal funds rate within the range of 4.25% to 4.50%. This marks the first pause in rate adjustments since the central bank initiated its easing policy in September of the previous year.
The accompanying policy statement highlighted that the unemployment rate remains at a “low level” while inflation continues to be described as “somewhat elevated.” Notably, the phrasing in this statement was more hawkish than before, as it omitted last month’s reference to the “progress” being made toward achieving the Fed’s 2% inflation target.
In the wake of the announcement, the price of bitcoin (BTC) experienced a decline, dipping to $101,800 shortly after the news broke. U.S. stock markets also reacted negatively, with the Nasdaq Composite falling by 1.1% and the S&P 500 index decreasing by 0.9%. Both the dollar and gold prices remained relatively stable, while the yield on the 10-year Treasury note climbed by 5 basis points to reach 4.59%.
Since the initial rate cut in September, the federal funds rate has been reduced by a total of 100 basis points. Interestingly, the U.S. 10-year Treasury yield has followed an opposite trajectory, increasing from 3.6% to 4.6%. This divergence between short-term and long-term interest rates is a phenomenon that is rarely observed.
This notable divergence, coupled with a series of stronger-than-expected economic indicators and inflation reports, has certainly captured the Fed’s attention. In his remarks following the bank’s December meeting, Chair Jerome Powell made it clear that any further rate cuts are, at least for the time being, off the table.
Market participants are now closely watching Powell’s upcoming press conference, where they will seek additional insights and guidance regarding future monetary policy directions.
