The FED maintains rates, the Savings Portfolio in dollars at 4%

The FED keeps interest rates unchanged

As expected, the FED (Federal Reserve of the U.S.) kept interest rates unchanged in its meeting (29/01/2025).

The target range for the FED Funds (U.S. Federal Funds) remains between 4.25% and 4.50%.

In the statement accompanying the decision, the central bank removed references to a slowdown in the labor market and instead noted that unemployment has stabilized at a low level (4.1% in December), with labor conditions remaining solid.

This reflects a more optimistic stance from the FED regarding the resilience of the labor market, showing greater confidence in its strength compared to a few months ago.

It is important to remember that the FED lowers interest rates to reduce the cost of financing for both individuals and businesses, thus supporting the economy during periods of slowdown and rising unemployment. Conversely, it raises them to slow down the economy when excessive demand drives prices higher.

Powell indicated that the rates are still in restrictive territory, meaning above what is considered a long-term equilibrium level. This suggests that the FED intends to continue lowering them to align them better with this level.
However, given the strength of the labor market, the central bank is not in a hurry and wants to see further progress in the fight against inflation.

Recent data shows inflation at 2.9% and 3.2% if the most volatile components, such as food and energy, are excluded. These levels are undoubtedly more acceptable compared to those registered after the pandemic, but still relatively far from the 2% target.

Futures on FED Funds now assign about a 50% probability of a rate cut before May 2025. It will also be key to observe whether the policies of the new Trump administration, particularly expansionary fiscal measures and import tariffs, generate additional inflationary pressures.

Dollar Savings Portfolio remains at 4%

The absence of interest rate cuts by the FED is good news for our Dollar Savings Portfolio, whose Yield to Maturity (YTM) remains at 4%.

The 4% YTM in dollars remains historically very attractive (see the chart at the beginning of this post) and highly competitive compared to the interest rates on deposits and savings accounts, even for the case we are discussing in this post in the dollar currency.

Since we launched the Dollar Savings Portfolio, the accumulated return has been 9.9%, which is 6.3 percentage points higher than the accumulated return on 1-year dollar deposits.

For investors who prefer to lock in a fixed return for a longer period (and are willing to accept some additional risk), we remind you that we offer a full range of portfolios with target returns and bond portfolios (both in Euros and dollars) that allow for longer-term exposure to maturities/durations.

If your horizon is longer, you may find our indexed fund portfolios more suitable, and for your retirement, our pension plan portfolios.