Fed pauses
The Federal Reserve left its benchmark fed funds rate unchanged in a target range of 4.25%-4.5%, the first pause in the monetary easing campaign the central bank launched in September:

Source (data): Federal Reserve. Values represent upper end of Fed funds target range. (For illustrative purposes. Not a recommendation.)
The markets widely anticipated the Fed’s pause, as a strong economy, plateauing inflation, and uncertainty about the Trump administration’s policies appeared to make the risks of waiting outweigh the potential benefits of a fourth-consecutive rate cut.
From March 2022-July 2023, the Fed attempted to cool the economy and combat inflation by raising rates from zero to 5.25%-5.5%. While the Fed’s goal during the hiking cycle was to reduce inflation without triggering a recession, its current challenge is to lower rates without overheating the economy and reigniting inflation.
When the Fed lowers rates, auto loans, credit card rates, and mortgages typically become more affordable, while companies usually pay less to borrow money. That can spur the economy by encouraging both consumers and businesses to spend. However, most rates are higher now than they were in September when the Fed began its easing cycle, in part because the economy has persistently outperformed expectations and recession concerns eased.
Trade-policy uncertainty has the potential to contribute to market volatility, according to Morgan Stanley & Co. analysts.
Overall, economic growth has cooled over the past year or so, but it’s been more resilient than many analysts had expected. That appeared to shift concerns about the Fed being “behind the curve”—that is, not cutting rates quickly enough to prevent the economy from slipping into recession—to concerns that the Fed risked reigniting inflation if they cut too aggressively.
Since the November election, markets have faced uncertainty about how aggressively the White House would pursue tariffs, and whether its policies could trigger another inflation surge. While the Colombian tariff episode earlier this week did little to clarify the issue,1 it was a reminder of what Morgan Stanley & Co. analysts described as the potential for trade-policy uncertainty to contribute to volatility in the financial markets.2
While inflation hasn’t been hot in recent months, it’s been “stickier” than expected. In December, the Fed’s preferred gauge, the “core” PCE Price Index (which excludes food and energy prices), came in at an annualized rate of 2.8% for the second month in a row. It hasn’t decreased since last June, although it’s down significantly from its 2022 high of 5.65%. The next release will be this Friday at 8:30 a.m. ET.
Note: The Fed’s next policy meeting is scheduled for March 18-19.
1 CNN.com. Colombia backs down on accepting deportees on military planes after Trump’s tariffs threats. 1/27/25.
2 MorganStanley.com. Potential Economic Consequences of Trump’s Executive Orders. 1/22/25.