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- The Federal Reserve kept interest rates unchanged at 3.75% on Wednesday, noting that the labor market has stabilized while inflation remains somewhat elevated.
- The Fed stated that it will carefully assess upcoming data to determine the economic outlook and its risks.
- The decision resulted in a vote of 10-2, with governors Miran and Waller pushing for another rate cut.
- Fed independence remains under threat, with Powell being served with subpoenas, alongside President Trump’s push to fire Fed governor Lisa Cook.
The Federal Reserve announced a strategic pause in its monetary easing cycle yesterday, maintaining interest rates at current levels as policymakers navigate mounting political pressures and prepare for a leadership transition.
The decision reflects the central bank’s evolving assessment of economic conditions and marks a significant shift in its approach to balancing inflation control with employment goals.
The Decision to Hold Rates
The FOMC decided to keep the key interest rate at 3.75%, a decision widely expected by financial markets. The Fed previously cut rates three times consecutively, each one being a 25 basis-point cut to prevent further labor market weakness.
The committee was also optimistic about economic growth, stating that the year started on a strong note. Officials seem to be worrying less about jobs and more about inflation, which still sits above the Fed’s 2% target.
The committee removed a key line from its statement, no longer suggesting the labor market is a greater concern than inflation. That shift may signal the central bank is more comfortable pausing rate cuts for now, as its dual mandate (price stability and maximum employment) appears more evenly balanced. ⁽¹⁾
The statement gave little guidance on future moves. Markets expect the Fed to wait until at least June before any change to the benchmark rate.
Powell repeated his tone from December: “In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks.”
The tone has shifted away from the easing cycle that started back in September 2025. ⁽²⁾
Dissents and Voting Details
The decision came to a vote of 10-2, with governors Miran and Waller dissenting from the vote as both opted for another 25 basis-point rate cut. Both Miran and Waller were appointed by President Trump, with Miran filling an empty seat in September 2025, while Waller came in during Trump’s first term. ⁽³⁾
The other 10 FOMC members voted for the hold. This group included four new regional presidents, along with the seven governors and New York Fed President John Williams. ⁽⁴⁾
Powell’s Comments on the Economy
During the press conference, Chair Jerome Powell answered questions about the decision, the economy, threats to independence, and other topics. He stated that downside risks to employment have faded as the labor market is starting to stabilize. He also indicated that there are still some tensions between the mandates, but the policy remained in a good position. ⁽⁵⁾
On growth, Powell noted improvement: “The outlook for economic activity has improved, clearly improved since the last meeting, the economy has once again surprised us with its strength, growth is on a solid footing.” ⁽⁶⁾
Challenges to Fed Independence
The decision came during a tense time for the Fed. Powell has only two more meetings before his term ends. His eight-year term included a global pandemic, a steep recession, and repeated clashes with President Trump.
The Justice Department subpoenaed Powell over renovations at the Fed’s headquarters in Washington, D.C. Trump has threatened to fire Powell multiple times and has attempted to remove governor Lisa Cook. That case is now before the US Supreme Court. Powell did not comment on the DOJ probe during the press conference.
Powell attended oral arguments at the high court. He called the case “perhaps the most important” in the Fed’s 113-year history. Powell also noted that he was following in the footsteps of Paul Volcker, who similarly appeared before the Supreme Court during his tenure as Fed Chair to defend the central bank’s independence.
Powell also linked the threats to Trump’s aim of controlling monetary policy. He said prior presidents criticized the Fed, but none were as aggressive or public as Trump. ⁽⁷⁾
Economic Backdrop
The economy has been displaying strong growth, with GDP growing 4.4% in the third quarter, expected to come in at 5.4% in the fourth. Hiring remained slow, partly due to the Trump administration’s crackdown on illegal immigration. But layoffs are low, with initial jobless claims at their lowest in two years. ⁽⁸⁾
Inflation has stayed persistent and above the Fed’s 2% goal. Some FOMC members want to pause or stop cuts entirely until more progress is shown on inflation. Trump’s tariffs have increased inflation slightly, but Fed economists expect it to ease off later.
Markets price in at most two rate cuts in 2026, while also expecting BlackRock bond chief Rick Rieder to emerge as a likely successor to Powell. ⁽⁹⁾
Market Reaction
The US stock market ended on a mixed note, with the S&P 500 pulling back from its new all-time high at 7,000 as markets shift their focus to company earnings.
The US dollar index resumed its decline after suffering a 1.5% drop on Tuesday, as Powell didn’t give any comments on the dollar’s latest decline. Precious metals continued their surge to new record highs, with gold climbing above $5,550/oz while silver reached $120/oz.
