US FOMC preview: Fed expected to hold, but statement may signal caution

The Federal Open Market Committee (FOMC) is widely anticipated to maintain its current stance on interest rates in its upcoming January meeting, following three consecutive rate reductions. While this does not imply the end of the easing cycle, policymakers are expected to leave the timeline and scope of future adjustments uncertain. There is a possibility that the committee’s statement may adopt a more cautious tone.

After the decision, Fed Chair Jerome Powell is likely to emphasize that monetary policy remains restrictive, reinforcing the view that gradual rate reductions are appropriate. However, given the prevailing economic uncertainties, he is unlikely to provide clear guidance on the trajectory of future adjustments.

What to Expect in the January 29 Meeting

The federal funds rate is expected to remain unchanged in the 4.25%-4.50% range.

The official statement is likely to resemble December’s version, maintaining a subtle inclination toward easing while offering little indication of when or how aggressively rates might be cut.

There is a possibility that the statement could adopt a slightly more cautious tone, reflecting ongoing concerns about inflation and broader economic risks.

During the press conference, Powell will likely be asked about the key drivers behind future policy moves. His response is expected to be measured, reiterating the restrictive nature of current policy while highlighting the uncertainties surrounding future decisions.

A more hawkish stance could emerge if the statement explicitly conditions further adjustments on clear progress toward the 2% inflation target. However, this remains an alternative rather than the baseline expectation.

While previous FOMC statements have occasionally outlined specific risks to the economic outlook, this one is expected to be more general. Powell’s remarks may align with the sentiment expressed in December’s meeting minutes, which cited a range of factors—including trade, immigration, fiscal policy, and regulatory changes—that could influence economic conditions.

Changes in the voting committee

As part of the annual rotation, some Federal Reserve Bank presidents will join the voting ranks in 2025, replacing more centrist voices with individuals holding perspectives at opposite ends of the policy spectrum. Newly appointed voting members include:
Austan Goolsbee (Chicago)
Susan Collins (Boston)
Alberto Musalem (St. Louis)
Jeffrey Schmid (Kansas City)

These officials replace Thomas Barkin, Raphael Bostic, Mary Daly, and Beth Hammack. Despite the broader range of viewpoints, there is broad consensus within the committee to hold rates steady in January, and no dissenting votes are expected.

Market expectations and outlook for rate cuts

Market expectations have shifted since the December 19 meeting, gradually aligning with the Fed’s outlook for two rate cuts in 2025, with the first likely in June. However, projections remain fluid. Some analysts still foresee three reductions beginning in March, while others believe the Fed may delay easing for a longer period.

Key takeaway

The FOMC is expected to pause its rate-cutting cycle after reducing rates by 100 basis points since September. While officials acknowledge ongoing risks to both employment and inflation, they are unlikely to provide specific guidance on the future policy path. The tone of the statement may become slightly more hawkish, but the broader message will remain cautious, reflecting the Fed’s continued assessment of economic conditions.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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