Finance

Fed holds rates steady, takes less confident view on inflation

Published

3 months ago

January 29, 2025

The Federal Reserve held its key interest rate in check Wednesday, reversing a recent trend of easing policy as it examines what is likely to be a bumpy political and economic landscape ahead.

In a widely anticipated move, the central bank’s Federal Open Market Committee left unchanged its overnight borrowing rate in a range between 4.25%-4.5%.

The decision followed three straight cuts since September 2024 worth a full percentage point and marked the first Fed meeting since frequent Fed critic Donald Trump assumed the presidency last week and almost immediately made known his intentions that he wants the central bank to cut rates.

The post-meeting statement dropped a few clues about the reasoning behind the decision to hold rates steady. It offered a somewhat more optimistic view on the labor market while losing a key reference from the December statement that inflation “has made progress toward” the Fed’s 2% inflation goal.

“The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid,” the new language read. “Inflation remains somewhat elevated.”

A stronger labor market and stubborn inflation would provide less incentive for the Fed to ease policy. The statement again indicated that the economy “has continued to expand at a solid pace.”

During a news conference, Chair Jerome Powell added that the labor market has not been a significant source of inflationary pressure. He said the central bank would need to see “real progress on inflation or some weakness in the labor market before we consider making adjustments.”

Stocks fell after the decision to leave rates unchanged.

Recent statements from policymakers have shown some apprehension about whether progress in bringing down inflation has stalled. Officials also have said they want to see how the previous cuts are working their way through the economy though most expect rate reductions this year.

No contact with Trump

In addition, the decision comes against a volatile political backdrop.

In a little over a week, Trump has cut a swath through Washington policy and political norms as he has signed hundreds of executive orders that seek to implement an aggressive agenda. The president has backed tariffs as both an economic and foreign policy tool, ordered a wave of deportations against those crossing the border illegally, and has put forth a series of deregulatory measures.

Moreover, Trump last week spoke of his confidence that he will bring down inflation and said he would “demand” that interest rates be lowered “immediately.” Though the president has no authority over the Fed other than to nominate board members, Trump’s statement signaled a potentially contentious relationship with the policymakers much like during his first term.

Powell said he has not had any contact with the president since he made those statements.

Inflation lower but not at target

Inflation has moved down sharply from the 40-year peak it hit in mid-2022, but the Fed’s 2% goal has remained elusive. In fact, the central bank’s preferred pricing gauge showed headline inflation ticked higher to 2.4% in November, the highest since July, while the core measure excluding food and energy held at 2.8%.

Traders had been pricing in a nearly 100% probability of the Fed holding the line at this meeting and in fact don’t see another cut coming until June. Markets are pricing in a funds rate of about 3.9% by the end of 2025, implying a 61% probability of two quarter percentage point cuts this year, according to CME Group data.

Economic growth has been solid and consumer spending held up well during 2024. Gross domestic product is tracking at an annualized growth rate of 2.3% for the fourth quarter, according to the Atlanta Fed, which lowered the estimate Wednesday from the previous outlook for 3.2% as data on private domestic investment weakened.

The meeting also featured a changed voting composition on the FOMC. Powell and the other seven board of governors members are joined this year as voters by regional Presidents Austan Goolsbee of Chicago, Alberto Musalem of St. Louis, Susan Collins of Boston and Jeffrey Schmid from Kansas City. The vote to keep the funds rate unchanged was unanimous.

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Finance

Digital bank Bunq accelerates US expansion effort as profit jumps

Published

2 hours ago

April 15, 2025

Business Finance News

Dutch digital bank Bunq is plotting re-entry into the U.K. to tap into a “large and underserved” market of some 2.8 million British “digital nomads.”

Pavlo Gonchar | Sopa Images | Lightrocket | Getty Images

Dutch digital bank Bunq on Tuesday said it’s filed for broker-dealer registration in the U.S. as it looks to further expand across the Atlantic.

Bunq CEO Ali Niknam said the broker-dealer application will be an initial step toward securing a full banking license. He couldn’t offer a firm timeline for when Bunq will secure this authorization in the U.S. — but said he’s excited for its growth prospects in the country.

Obtaining a broker-dealer license will mean Bunq “can offer our users who have an international footprint — which is the user demography we’re aiming for — a great number of our services,” Niknam told CNBC. Bunq mainly caters for “digital nomads,” individuals who can live and work from anywhere remotely.

Bunq will be able to offer most of its services in the U.S. with the exception of a savings account after securing broker-dealer authorization, Niknam added.

Bunq, which touts itself as a bank for “digital nomads,” currently has a banking license in the European Union. It has applied for an Electronic Money Institution (EMI) in the U.K. Bunq previously had operations in Britain but forced to withdraw from the country in 2020 due to Brexit.

Bunq initially filed for a U.S. Federal bank charter in April 2023. However, it withdrew the application a year later, citing issues between its Dutch regulator and U.S. agencies. The company plans to resubmit its application for a full U.S. banking license later this year.

65% jump in profit

Beyond the update on international expansion, Bunq also on Tuesday reported a 65% year-over-year jump in profit to 85.3 million euros ($97.2 million). That jump was primarily driven by a 55% increase in net interest income, while net fee income also grew 35%.

Similarly to fintech peers such as N26 and Monzo, Bunq has benefited from a high interest rate environment by pocketing yields on customer deposits sat at the central bank.

Bunq’s CEO told CNBC that, while high interest rates have certainly helped, more generally Bunq is seeing increased usage of the platform and has been focused on cost efficiency from an operational perspective.

“Because we are so lean and mean, and because we have set up all of our systems from scratch … we have been able to not only increase our profits, but also offer very good interest rates in the European market in general, and in the Netherlands specifically,” Niknam said.

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More recently, central banks in the EU and U.K. and U.S. have moved to slash interest rates in response to falling inflation and concerns of an economic slowdown, which can bite into bank earnings.

Niknam said he’s not concerned by the prospect of rates coming down and expects potential declines in interest income to be offset by a “diversified” revenue mix that includes income from paid subscription products, as well as new features. Bunq recently launched a tool that lets users trade stocks.

“This is different in continental Europe to the U.K. We had negative interest rates for long,” Niknam told CNBC. “So as we were growing, actually our cost base was also growing because we had to pay for all the deposits that people deposited a Bunq so I think we’re in a great position in 2025

Bunq is coming up against heaps of competition, especially in the U.S. market. America is already served by established consumer banking giants, including JPMorgan Chase, Bank of America, Wells Fargo and Citigroup. It’s also home to several major fintech brands, such as Chime and Robinhood.