The Federal Reserve kept interest rates unchanged on Wednesday, citing a resilient U.S. economy and easing risks to both inflation and employment. The assessment suggests policymakers may wait some time before considering further cuts to borrowing costs.
Speaking after the two-day policy meeting, Fed Chair Jerome Powell said the economy has continued to outperform expectations. The central bank voted 10–2 to maintain the benchmark rate in the 3.50% to 3.75% range, following three consecutive rate cuts late last year.
Powell said the Fed is “well positioned” to evaluate whether additional policy adjustments will be needed. He noted that a renewed slowdown in the labor market or a clearer move in inflation back toward the Fed’s 2% target could justify future action, but emphasized that many possible scenarios remain on the table.
Since the Fed’s December meeting, Powell said upside risks to inflation and downside risks to employment have both diminished, though they have not disappeared entirely. He added that current policy settings are appropriate given the economic backdrop.
Two policymakers dissented from the decision. Governors Christopher Waller and Stephen Miran both voted in favor of a quarter-point rate cut. Waller is widely viewed as a potential successor to Powell when his term as Fed chair ends in May.
Focus shifts to Fed independence
While the rate decision itself was widely anticipated, much of the post-meeting press conference centered on questions about the Fed’s independence. Reporters pressed Powell on whether he plans to remain at the central bank after his term as chair expires, particularly after the Trump administration opened a criminal investigation into him earlier this month.
U.S. President Donald Trump has repeatedly criticized the Fed and Powell for not delivering the aggressive rate cuts he believes are needed to boost economic growth.
Powell declined to comment further on the investigation, which he has previously described as politically motivated. However, he offered advice for his eventual successor, urging them to avoid political pressure and remain accountable to Congress, which oversees the central bank.
Inflation still above target, jobs stabilize
In its policy statement, the Federal Open Market Committee gave no indication of when the next rate cut might occur. Officials reiterated that the timing and scope of any future adjustments will depend on incoming economic data and the broader outlook.
Economists broadly expect the Fed to remain on hold for an extended period. Inflation remains roughly one percentage point above the central bank’s target, while labor market conditions appear to be stabilizing.
Powell said inflation is still “somewhat elevated,” with Fed officials pointing to last year’s tariffs on imported goods as a lingering source of price pressure. He added that the impact of those tariffs is expected to fade by mid-year. If it does not, inflation could become a key challenge for the next Fed chair.
So far, Powell said longer-term inflation expectations remain well anchored, giving the Fed room to closely monitor market conditions.
Although policymakers acknowledged that job gains have slowed, they removed language from their previous statement suggesting rising downside risks to employment. Officials now view the labor market as roughly balanced, with slower hiring matching reduced labor supply growth tied to stricter immigration policies. The unemployment rate fell to 4.4% in December.
Market reaction
U.S. stock markets edged slightly lower after the policy statement before finishing the session largely unchanged. The yield on the 10-year Treasury note rose to around 4.25%, while the two-year yield held near 3.57%.
Interest rate futures markets shifted to price in the next potential Fed rate cut at the June meeting, which is expected to be led by Powell’s successor, pending confirmation by the Senate.
