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Welcome to Investing Insights. I'm your host, Ivana Hampton. Interest rates will stay right where they are.

The Federal Reserve delivered the expected decision following their first meeting of 2025.

They say a good labor market, growing economy, and somewhat elevated inflation is provided an

opportunity to wait and see. But that's the opposite of what President Trump is calling for when it

comes to rates. There are other potential policies like tariffs

that could influence the economy. Preston Caldwell is a senior U.S. economist for Morningstar Investment

Management. We discussed the Fed's decision, the new administration's direction, and his economic

outlook. Thank you for joining me, Preston. Hey, thanks for having me, Ivana.

Now, the Fed made three straight rate cuts to close out 2024. It was a unanimous decision at their

January meeting to pause. Was it the correct move? Why or why not? Yeah, so I mean, just to provide the background, you know, it was widely expected that the Fed

would keep its federal funds rate unchanged at a target range of four and a quarter to four

and a half percent. So the Fed had cut by a cumulative one percentage point over September to December of last year.

And prior to that, the Fed funds rate had been at a very high plateau of five and a quarter to five and a half percent since July 2023.

Now, rates are still high.

Obviously, we were at zero during the pandemic up until the beginning of 2022.

But even compared to the pre-pandemic years over 2017 to 2019, we averaged a federal

funds rate of 1.6%.

So at current levels, we're up over 270 basis points compared to that pre-pandemic baseline.

So we're still in a regime of high interest rates, but I do think the Fed is correct for not being in a hurry based on what the data has been showing.

Inflation is getting very close to normal, but we're not quite there yet, not quite at the Fed's 2% target.

And, you know, even though I think ultimately rates need to fall to sustain a healthy rate of economic growth, that need doesn't seem to be urgent because we don't see imminent signs of deceleration in terms of

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