The Federal Reserve's meeting concluded today with the Fed continue to maintain its target rate at 4.25 to 4.50%.

In the Fed's statement, it cites significant progress in getting inflation to its 2% target, but still remains elevated. In fact, the Fed increased its core inflation projection for all of 2025 from 2.50% to 2.80%. The Fed also reduced its growth forecast for 2025 to 1.70%, and sees growth below 1% in 2026.

Importantly, the Fed removed its statements that risks are balanced on both sides of its mandate. In fact, the Fed clearly sees risks everywhere and a slow down in the economy could cause it to reduce short term borrowing costs quickly and decisively.  But for the moment, that is still not here and the Fed still wants to remain cautious on inflation and cannot be certain to proclaim victory prior to new tariffs potentially going into effect on April 2.

At the same time, The Fed is still guiding to two quarter point rate cuts over the course of 2025. While we may not see a rate cut on May 7, we could see one as early as June 18.

The Federal Reserve ended its January 2025 meeting without changing the Federal Funds target rate or providing much more guidance for the direction for the rest of the year.

In its unanimous statement, the Fed says that the economic conditions remain strong and the economy is progressing towards the Fed's 2% inflation target.

The Fed says it is still considering its next move.  Presumably, the Fed's guidance remains towards one or two quarter-point cuts in the course of 2025.  The next meeting in March 19, 2025 and the Fed should have a lot more information then and be able to provide more guidance as to what it will do for the rest of the year. 

As expected, the Federal Open Market Committee has ended its December 2024 meeting by cutting the Fed Funds rate by 25 basis points to a 4.25% to 4.50% target. The Fed's decision follows a 50 basis point cut in September and a 25 basis point cut in November. The Fed funds rate now stands a full percent below where it was just three months ago and where it had stood for most of 2024 (the Fed raised interest rates by 25 basis points in January for its final move of this cycle).

The December decision was not unanimous with Cleveland Fed President Beth Hammack voting against the move and preferring to keep rates steady. Hammack's dissent is indicative of an underlying unease with the pace of inflation remaining above the Fed's 2% target. Chairman Jerome Powell's statement indicated concern as well, guiding to only two cuts in 2025 (previous guidance had been for four). Powell also refused to rule out further rate hikes, saying: "You don't rule things completely in or out in this world." Monetary conditions may also need to remain tight as a precaution should tariffs and mass deportations result in dramatic changes in costs and labor conditions.

As a result, the 2-year Treasury rates quickly moved from around 4.23% to 4.35%.

It seems pretty clear - at least for now - that the era of very low interest rates that existed from 2008 to 2020 is gone. It also seems pretty clear that the era of inverted yield curves that existed since 2021 is also going to be leaving. With Treasuries of 2 years and longer now yielding more than short term Treasuries, those willing to tie up their cash for longer periods will begin to see a time premium. We expect to see banks begin to compete for deposits by offering 1-year CDs and 2-year CDs that offer a significant yield premium to online savings rates.