US stocks dropped on Wednesday, January 29, after the Federal Reserve kept interest rates unchanged in its first policy decision of 2025. The S&P 500 traded 0.8% lower, while the tech-heavy Nasdaq Composite more than lost 1%. The Dow Jones Industrial Average (DJIA) shed 179 points, or 0.4%.

The Federal Reserve paused, its first following three consecutive cuts at the end of 2024. The decision to hold interest rates comes as policymakers remain cautious about the direction of inflation and the potential effect of economic policies expected from the new Trump administration. The central bank voted unanimously to keep its benchmark interest rate in a range of 4.25–4.5% after its two-day policy meeting.

In its December meeting, nearly all members of the US Federal Reserve expressed concerns that the “upside risks to inflation” had increased, partly due to the potential impact of expected changes in trade and immigration policies. According to the minutes released from that meeting, several officials began incorporating these risks into their policy outlooks.

In recent weeks, several Fed officials have voiced growing apprehension over signs of persistent inflation, a development that has prompted the central bank to adopt a more cautious stance heading into 2025. In December, the Fed’s projection for interest rate cuts was revised to just two for the entire year, a sharp reduction from the earlier estimate of four.

Meanwhile, the latest data on inflation, as measured by the Consumer Price Index (CPI) for December, indicated modest progress, breaking three months of stagnation. The slight improvement signals cautious optimism, though challenges remain.