U.S. Federal Reserve holds rates steady
Decision comes hours after Bank of Canada cut its rates
The U.S. Federal Reserve left its benchmark interest rate unchanged Wednesday after cutting it three times in a row last year, a sign of a more cautious approach as the Fed seeks to gauge where inflation is headed and what policies President Donald Trump may pursue.
The central bank reduced its rate last year from 5.3 per cent to 4.3 per cent, in part out of concern that the job market was weakening.
Hiring had slowed in the summer and the unemployment rate ticked up, leading Fed officials to approve an outsized half-point cut in September. Yet hiring rebounded last month and the unemployment rate declined slightly, to a low 4.1 per cent.
In its statement Wednesday, the Fed upgraded its assessment of the job market, calling it "solid," and noting that the unemployment rate "has stabilized at a low level in recent months."
The Fed also appeared to toughen its assessment of inflation, saying that it "remains somewhat elevated."
Both a healthier job market and more stubborn inflation typically would imply fewer Fed rate cuts in the coming months. Fed chair Jerome Powell has said it is harder to gauge where inflation is headed, in part because of increased uncertainty around what policies Trump will adopt and how quickly they will affect the economy.
Canada lowers rates
Hours earlier, Canada's central bank lowered its interest rate by 25 basis points to three per cent as governor Tiff Macklem warned there was little he could do to negate the economic impact of any U.S tariffs imposed on Canadian imports.
Trump has promised widespread tariffs, tax cuts and mass deportation of migrants, all of which could push prices higher. He has said he will impose a 25 per cent tariff on all Canadian imports, a move that could come as early as Feb. 1.
The Fed typically keeps interest rates high to slow borrowing and spending and cool inflation. Powell said in December that the central bank has entered a "new phase," in which it expects to move more deliberately. In December, Fed officials signaled they may reduce their rate just twice more this year.
Goldman Sachs economists believes those cuts won't happen until June and December. In November, inflation was just 2.4 per cent, according to the Fed's preferred measure, not far from its 2.0 per cent target. But excluding the volatile food and energy categories, core prices rose 2.8 per cent from a year earlier.