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The Federal Reserve has decided to keep interest rates unchanged, holding the benchmark federal funds rate at 4.25% to 4.5% in what appears to be a wait-and-see approach amid economic uncertainty. After three consecutive rate cuts in previous meetings, including a 50-basis-point cut in September and two 25-basis-point reductions in November and December, the Fed is signaling caution while inflation and employment data continue to unfold.

Fed Chair Jerome Powell attempted to paint a picture of a stable economy, citing “continued expansion” and a “balanced” labor market. However, inflation remains stubbornly above the Fed’s 2% target, and Powell acknowledged that the economic outlook remains uncertain. The market reaction to the Fed’s decision was largely subdued, with the S&P 500 dipping 0.4% and the Dow Jones Industrial Average down 0.2% during afternoon trading.

President Donald Trump has not been shy about his stance on interest rates. Speaking at the World Economic Forum, he made it clear he wants rates slashed to boost growth, calling for the Fed to act aggressively. When asked about Trump’s comments, Powell refused to respond, sticking to the usual bureaucratic script that the Fed is independent of politics. However, the reality is that the central bank is navigating the economic effects of Trump’s policies, particularly his aggressive tariff strategy, which has shaken market forecasts.

The real concern for investors is whether the Fed will resume rate cuts in the coming months or continue stalling. Powell admitted that cutting too soon could risk reigniting inflation, while cutting too late could weaken economic activity and job growth. This balancing act signals that the Fed has no clear direction, and with Trump’s pro-growth agenda now in full swing, the pressure is mounting for rate cuts to ensure American businesses remain competitive.

Another hot topic was immigration’s impact on unemployment. Powell had previously noted that illegal immigration contributed to rising unemployment, but when pressed, he claimed border crossings have “decreased significantly.” Whether that’s reality or political spin remains debatable, especially given the Biden-era border disaster that flooded the labor market with undocumented workers.

Meanwhile, Elon Musk’s Department of Government Efficiency (DOGE) has taken aim at the Fed’s bloated bureaucracy, calling it “absurdly overstaffed.” Powell, unsurprisingly, defended his agency, insisting the Fed runs “a very careful budget process”—a claim that will likely raise some eyebrows among fiscal conservatives.

The probability of rates remaining unchanged through the March 18-19 Fed meeting jumped from 68.5% to 79.6%, according to the CME FedWatch tool, meaning investors aren’t holding their breath for a rate cut anytime soon. Seema Shah, chief global strategist for Principal Asset Management, said the Fed is reacting to new economic policies as they unfold but admitted that if inflation eases further and job growth slows, the central bank may “start to sound more dovish” on rate cuts.

Bottom line? The Fed is dragging its feet, while Trump is pushing for action. Investors should prepare for a showdown between the central bank and the pro-growth policies of Trump’s administration. If inflation data continues to cool, expect Trump’s calls for rate cuts to get louder—and Powell’s resistance to get weaker.


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