WASHINGTON — The Federal Open Market Committee voted unanimously on Wednesday to hold the federal funds rate at 4.75%, pausing a rate-cutting cycle that had reduced borrowing costs by a full percentage point over the previous year.
Fed Chair Denise Holbrook said the decision reflected "genuine uncertainty" about the trajectory of inflation in the services sector, where price growth remains above the central bank's 2% target despite cooling in goods and energy markets.
The Inflation Picture
Core PCE inflation — the Fed's preferred gauge — rose 2.8% year-over-year in the most recent reading, down from a peak of 5.6% but still elevated. Services inflation, driven largely by shelter costs and healthcare, has proven stickier than Fed economists projected in their September forecast.
"We are not declaring victory on inflation," Holbrook told reporters at the post-meeting press conference. "We are saying we have made substantial progress and we do not want to repeat past mistakes by easing prematurely."
Market Reaction
Equity markets fell modestly on the decision, with the S&P 500 closing down 0.4%. Treasury yields rose as investors pushed back expectations for the next rate cut from March to May. The dollar strengthened against the euro and yen.
Economists at major investment banks were divided on the path forward. Goldman Sachs maintained its forecast of two 25-basis-point cuts in the second half of the year, while Morgan Stanley revised its projection to a single cut in the fourth quarter.