The Fed Pauses Rate Cuts as Geopolitical Talks and Trade Frictions Unfold Simultaneously

Daily News

Summary:

The Fed holds rates steady as expected; to address the Greenland issue, the U.S. and Denmark have commenced Closed-Door Negotiations......

[Quick Facts]

1. The Fed holds rates steady as expected, the statement notes signs of stabilization in the unemployment rate.

2. U.S. Secretary of State: Trilateral U.S.-Russia-Ukraine Talks are ongoing, territorial issues remain unresolved.

3. To address the Greenland issue, the U.S. and Denmark have commenced Closed-Door Negotiations.

4. U.S. Democrats pressure via funding talks to restrict Trump's Immigration Enforcement.

5. Trump renews threats: Hopes Iran will return to the negotiating table.

6. Canada keeps interest rates unchanged, in line with expectations.

7. New Zealand Business Confidence retreats from the 30-Year high in January, and emerging inflation pressures draw attention.

8. U.S. and Mexico launch USMCA Reform Talks, focusing on critical minerals and anti-dumping cooperation.

9. New rift in U.S.-Canada relations: Trump Administration secretly meets Canadian Separatist Group.

10. Is the U.S.-Japan coordinated intervention working? Ex-BoJ official: Tokyo may delay market entry.

[News Details]

The Fed holds rates steady as expected, the statement notes signs of stabilization in the unemployment rate

By a vote of 10–2, the Federal Reserve decided to maintain the federal funds rate target range at 3.5%–3.75%, consistent with broad market expectations, ending its previous streak of three consecutive cuts. The rationale cited persistent inflation alongside solid economic growth. Fed Governor Michelle Bowman, trusted by Trump, and Governor Christopher Waller, a contender for Fed chair, dissented, favoring a 25-basis-point cut. Notably, the Fed removed earlier language stating that risks to the labor market were greater than those from rising inflation. Markets expect the next rate adjustment may not come until June.

According to Chair Powell, data do not strongly indicate that monetary policy is overly restrictive, and inflation risks have eased somewhat. The unemployment rate shows some signs of stabilizing. Meanwhile, after gradual softening, the labor market may be leveling off, with hiring, job openings, and wage growth largely unchanged. Consumer spending remains resilient, and normalizing monetary policy should help stabilize the labor market. Once prices decline, the Fed can ease policy. The FOMC will decide on rate cuts meeting by meeting based on incoming data, stressing that rate hikes are not the baseline assumption for future moves.

The U.S. economy expanded at a solid pace in 2025. While the government shutdown could hurt Q4 growth, conditions will reverse, putting 2026 on a firm footing with significantly improved prospects. Inflation remains elevated partly due to tariffs raising goods prices. Tariff effects will show as prices peak then fall, assuming no major new tariff hikes; tariff-driven inflation is expected to fade by midyear. Powell expects core inflation last month reached 3%, but victory over inflation cannot yet be declared. However, he is confident of returning to the Fed's 2% target, noting inflation risks have eased somewhat.

U.S. Secretary of State: Trilateral U.S.-Russia-Ukraine Talks are ongoing, territorial issues remain unresolved

On January 28th, local time, U.S. Secretary of State Marco Rubio said trilateral U.S.-Russia-Ukraine talks on Ukraine continue, but differences persist on territorial issues — one of the few key obstacles in current negotiations.

Rubio stated the U.S. will likely need to provide security guarantees for any potential agreement to ensure implementation. He mentioned talks this weekend in Abu Dhabi, UAE, might include U.S. officials, but not Steve Witkoff or Jared Kushner, without specifying who would attend.

To address the Greenland issue, the U.S. and Denmark have commenced Closed-Door Negotiations

On January 28th, local time, closed-door discussions involving Denmark, Greenland, and the U.S. have begun regarding the Greenland issue. Secretary Rubio said negotiations on Greenland security arrangements started on the 28th, with technical-level consultations underway among representatives of the U.S., Greenland, and Denmark.

Rubio emphasized the U.S. will not use military force over Greenland, a position made clear by President Trump. He added that the U.S. has established an advancement mechanism launched that day, aiming to produce outcomes beneficial to all parties involved.

U.S. Democrats pressure via funding talks to restrict Trump's Immigration Enforcement

Senate Democrats are demanding new constraints on President Trump's immigration enforcement actions in exchange for voting to avoid a possible prolonged government shutdown starting Saturday. These demands, announced two days before the funding deadline, include new limits on use of force by Homeland Security enforcement agencies. Democrats also seek mandatory body cameras, judicial search warrants, coordination with local law enforcement, and a ban on facial coverings by DHS agents.

Trump renews threats: Hopes Iran will return to the negotiating table

"A massive Armada is heading to Iran. It is moving quickly, with great power, enthusiasm, and purpose." Mr. Trump said in a post on his Truth Social platform. "Hopefully Iran will quickly 'Come to the Table' and negotiate a fair and equitable deal — NO NUCLEAR WEAPONS — one that is good for all parties," Trump claimed this fleet is larger than the one sent to Venezuela and warned the next strike on Iran will be even more severe.

Iran's Supreme Leader Ayatollah Ali Khamenei's defense advisor, Ali Shamkhani, wrote on social media that any U.S. military action will trigger an immediate, comprehensive, and unprecedented Iranian response.

Canada keeps interest rates unchanged, in line with expectations

The Bank of Canada held its policy rate at 2.25% after its meeting, matching market expectations. The statement said the rate level remains appropriate and ready to react if the outlook changes. It is difficult to predict the timing and direction of the next adjustment. Over the forecast horizon, inflation may approach the 2% target. Growth projections are little changed, with forecasts of 1.1% growth in 2026 and 1.5% in 2027.

Following revised statistics agency data, the central bank raised its 2025 GDP growth forecast to 1.7%, but cut its Q4 growth projection from 1% to zero. The bank expects high uncertainty, with a wide range of possible outcomes, and identifies the USMCA as a key source of uncertainty.

New Zealand Business Confidence retreats from the 30-Year high in January, and emerging inflation pressures draw attention

According to ANZ's latest survey, New Zealand business confidence fell in January from December's 30-year high, with the net share of firms expecting improvement dropping to 64.1% (from 73.6%), and the share expecting own-business growth falling to 51.6% (from 60.9%). Despite a pullback in sentiment, most activity indicators remain robust, supporting strong Q4 GDP growth. The survey also warns that businesses' price hike expectations — reflecting inflation pressures — rose sharply, diverging from the central bank's inflation forecast path, adding uncertainty to the outlook.

U.S. and Mexico launch USMCA Reform Talks, focusing on critical minerals and anti-dumping cooperation

On Wednesday, the Office of the U.S. Trade Representative said that USTR Greer and Mexican Economy Minister Ebrard agreed to begin formal consultations on potential reforms to the USMCA. Proposed directions include strengthening rules of origin for industrial goods, enhancing cooperation in critical minerals, further protecting the rights of workers and producers, and jointly combating regional dumping of manufactured goods. No specific negotiation timetable was given, nor was there mention of whether Canada, the third USMCA party, will join these bilateral talks.

New rift in U.S.-Canada relations: Trump Administration secretly meets Canadian Separatist Group

According to the Financial Times, as U.S.-Canada ties tighten, the Trump administration held secret meetings with Alberta's far-right separatist group "Alberta Prosperity Project." Insiders say since April last year, the group's leader met U.S. State Department officials in Washington at least three times. Alberta is Canada's most oil-rich province. The covert contacts deepen diplomatic rifts between Washington and Ottawa, raising questions about U.S. interference in Canada's domestic affairs.

Is the coordinated U.S.-Japan currency intervention working? Ex-BoJ official: Tokyo may delay market entry

Former BoJ official Atsushi Takeuchi said that because the coordinated U.S.-Japan currency intervention strategy has successfully curbed one-sided yen depreciation, Japanese authorities may refrain from official FX intervention for now. He pointed out the rare FX rate inquiry conducted by the New York Fed last Friday clearly showed the U.S. resolve to cooperate with Japan in preventing sharp yen declines.

Takeuchi stressed U.S. participation makes a huge difference, as markets understand they should not fight the Fed. His remarks suggest the current U.S.-backed FX strategy may have temporarily reduced the urgency for Japan to intervene unilaterally.

[Today's Focus]

UTC+8 21:30 U.S. November Trade Balance

UTC+8 22:30 Speech by ECB Executive Board Member Fabio Panetta

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