Fed maintains rates in first interest rate decision of the new year: CEI analysis

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The Federal Reserve has announced that in the interest of fighting inflation, it will not cut rates at this time. CEI senior economist Ryan Young says the Fed’s decision was the right move.
“Holding interest rates steady is probably the right decision for two reasons. One is that inflation is still above target levels. The other is policy uncertainty from the Trump administration.
“The Fed would like to cut interest rates because it will make mortgages and other loans a little more affordable. It will also ease interest payments on the national debt, which are now almost as costly as the entire defense budget. But the tradeoff to lower interest rates is higher inflation. The Fed shouldn’t stop fighting inflation until the foe is vanquished. That hasn’t happened yet.
“Trump’s impulsive policy approach also makes a rate cut unwise. Tariffs are not actually inflationary because they do not affect the price of all goods, the way monetary inflation does. But tariffs do raise prices of the goods they do affect, and the effects are big enough to show up in inflation indicators like CPI.
“That alone makes an interest rate cut unwise. Making the problem worse is that nobody knows the full extent of Trump’s upcoming tariffs, including Trump himself. Since monetary policy works on a lag time of anywhere from six months to a year and a half, the Fed should not react rashly to anything Trump does right now.”