[The USA Flag. Photo Credit: Pixabay]

In a recent statement, Federal Reserve Chair Jerome Powell commented on the positive state of the American economy and pointed to the low unemployment rate and the slightly elevated inflation rate above the 2% target. 

The Federal Open Market Committee’s unanimous decision on January 29th, 2025, to leave rates unchanged reflects the committee’s confidence in the ongoing path of the economy.

Powell noted that there is no need to change the monetary policy at the present moment, emphasizing the need to tackle the inflation rate without affecting growth.

Despite pressure from various quarters, the Federal Reserve remains committed to its dual mandate of maximizing employment and price stability.

The central bank is cautious not to react to the uncertainties in policy decisions regarding trade as it makes its decisions based on data.

The committee recognized the high level of uncertainty surrounding the  economic outlook and the risks to its objectives. 

In addition, the Fed continues to reduce its holdings of Treasury securities and agency debt, working toward balance sheet normalization to return its balance sheet to a more normal size.

In response to the Fed’s actions, financial markets have shown some fluctuations.

The U.S. dollar rose marginally against a number of currencies as investors' expectations conform to the central bank's view of the economy.

The Federal Reserve has indicated that it expects two rate cuts in 2025, revised down from its previous projection of four, as a result of the stable labor market, continuing inflation, and uncertainty in trade policies. 

This strategy reveals the Fed's approach of controlling the economy during the period of various domestic and foreign factors. 

While the rate of inflation remains above the desired rate, the central bank does not want to rule out rate hikes to stop cutting rates prematurely, which would lead to higher inflation. 

However, there are still many risks to growth, including geopolitical factors, supply chain issues and monetary stance. 

The markets will continue to monitor any change in the policy path, and the Fed's data-driven approach means that any rate changes will only be made in response to the economic data rather than to short-term pressures. 

This development will interest both investors, businesses, and policymakers, as they all await the next step by the central bank, which will influence the economy and the financial markets as well as the confidence of consumers.

The Federal Reserve will keep monitoring economic markers in the remainder of the year and modify its policy, if needed, to support maximum employment and price stability. 

The next FOMC meeting is set for March 18-19, 2025, where the policymakers will evaluate the economic situation and set the right direction for monetary policy.