As expected, the US Federal Open Market Committee (FOMC) left its federal funds rate unchanged at 4.50% at its meeting on 29 January. The decision was unanimously supported by all 12 voting members of the Committee.
The accompanying statement noted that “economic activity has continued to expand at a solid pace.” It also stated that “the unemployment rate has stabilized at a low level in recent months.” Labour markets remain firm with the unemployment rate trending up from 3.4% in April 2023 to 4.2% in mid-2024, but it has subsequently leveled off at just over 4%.
Additionally, the statement noted that “inflation has made progress toward the Committee’s 2 percent objective,” although it continued to describe inflation as “somewhat elevated.” The year-over-year change in the core personal consumption expenditure (PCE) deflator, which US Federal Reserve (Fed) officials believe is the best measure of the underlying rate of consumer price inflation, has leveled off noticeably above the FOMC’s target of 2%.

Source: Wells Fargo
In sum, there was little in the statement to suggest the FOMC is contemplating another rate cut soon. The Summary of Economic Projections, which is the quarterly document that summarizes the macroeconomic forecasts of members, showed that the Committee thought that an additional 50 basis points (bps) of rate cuts would be appropriate by the end of the year. If the FOMC views only 50 bps of rate cuts by December as appropriate, then it clearly does not need to be in a hurry to cut rates.
While the Fed is in no hurry, the Reserve Bank of Australia (RBA) is getting ready to commence cutting. The chances of a pre-election rate cut in Australia increased sharply on the release of softer-than-expected inflation data, firming the prospect of an April poll date and giving Labor a boost ahead of a campaign to be fought on cost-of-living pressures.
December quarter data showed underlying inflation fell from 3.6% in September to 3.2% in December – its lowest rate in three years. The bond market rallied hard on the view that the RBA would deliver its first rate cut (since November 2020) when it meets next month.
The RBA has raised rates 13 times since May 2022, taking the cash rate to its highest level in 13 years. Finally commencing a cutting regime will provide a sought-after relief to many borrowers.

Source: Bloomberg