The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
Federal Reserve Chairman Jerome Powell emphasized a cautious approach to future rate cuts, balancing economic growth and inflation management, during a press conference after the Federal Open Market Committee (FOMC) meeting. The Fed reduced the target federal funds rate by 25 basis points to a range of 4.25%-4.5%, signaling a slower pace of cuts in 2025 amid faster inflation and heightened uncertainty.
Key Takeaways
Proceeding Cautiously
- Powell underscored that the Fed is "a hundred basis points closer to neutral" and will tread carefully in adjusting rates further.
- He stated, "The economy seems to be in good shape," adding that the current rate policy remains "meaningfully restrictive", supporting economic activity and the labor market while continuing to combat inflation.
Bitcoin Ownership Off the Table
- Addressing speculation, Powell clarified that the Fed "is not allowed to own Bitcoin", citing the Federal Reserve Act. He added, "We are not looking for a law change," emphasizing that such matters fall under Congress's purview.
Tariff Impact and Trump Administration
- Powell stressed the need for careful consideration of any tariff adjustments under the new Trump administration.
- He noted, "It’s very premature to draw conclusions," highlighting that businesses have diversified supply chains away from China, altering the overall impact of tariffs.
Slower Rate Cuts and Inflation
- The FOMC forecasts a slower pace of rate cuts in 2025 due to higher-than-anticipated inflation and rising risks.
- Powell explained, "The slower pace reflects both the higher inflation readings this year and the expectation inflation will be higher."
Labor Market Cooling
- Powell highlighted that while the unemployment rate has risen to 4.2%, the labor market remains strong and is not a source of significant inflationary pressures.
- The Fed anticipates a median fed funds rate of 3.9% by the end of 2025, suggesting two 50-basis-point cutscompared to previous forecasts of 3.4%.
Dissenting Vote
- Notably, Beth M. Hammack of the Cleveland Fed voted against the rate cut, advocating instead to hold the rate at 4.5%-4.75%.
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