Rejecting US President Donald Trump’s call for more aggressive interest rate cuts, the Fed said on Wednesday that rates will remain at 3.5 to 3.75 percent.
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“The Committee seeks to achieve maximum employment and inflation at 2 percent over the long term. There remains uncertainty about the economic outlook,” the central bank said in its release announcing the decision.
Wednesday’s decision was widely expected. CME FedWatch, a tool that tracks expectations for monetary policy, projects a more than 97 percent chance the central bank will keep rates steady.
The tracker also expects two rate cuts in 2026, with the first cut most likely in June at the earliest.
“Available indicators suggest that economic activity is growing at a solid pace. Job gains have been modest and the unemployment rate has shown some signs of stabilization,” the central bank said.
The decision comes amid signs of stability in the US labor market. The US economy will add 584,000 jobs in 2025, the lowest annual job growth since 2003. Payrolls increased by 64,000 jobs in October and 50,000 jobs in December. While job growth remains weak, the December figure represents a modest bounce from October, when the economy lost 105,000 jobs, according to the Bureau of Labor Statistics.
There are signs that the labor market may cool further in the coming months. This week, both Amazon and UPS announced thousands of job cuts, some of which were geared toward increasing the use of artificial intelligence in the workplace.
Another threat to the US economy and job market comes in the form of an impending government shutdown. That could happen as early as Saturday, and depending on its duration, it could slow spending as federal workers are temporarily left without a pay check.
political tension
The decision to keep interest rates steady comes despite increasing pressure on the central bank from Trump to cut rates. Fed Chairman Jerome Powell has long insisted on the Federal Reserve’s independence, and Wednesday’s decision is the first since Powell rebuked the Criminal Justice Department’s investigation into him. The central bank president, whose term ends in May, called the investigation an “excuse” to put pressure on him.
“The threat of criminal charges is the result of the Federal Reserve setting interest rates based on our best assessment of serving the public rather than following the President’s preferences,” Powell said in comments in early January in response to a subpoena.
Last week, the Supreme Court heard arguments in a case over whether Trump has the legal authority to fire Fed Governor Lisa Cook amid mortgage fraud allegations.
Meanwhile, Fed Governor Stephen Miron’s term is set to end this week. Trump chose Miran in August to temporarily fill the seat vacated by Adriana Coogler while seeking a more permanent replacement.
Miran was one of two central bank governors who voted to lower interest rates, along with Christopher Waller.
This development has come to light when Trump is looking for a new Fed Chairman. He has clearly demanded further cuts in interest rates and a chairman who shares his views.
“Anyone who disagrees with me will never become Fed Chairman!” Trump said in a post on Truth Social in December.
Political pressure has also drawn the attention of global central banks.
“The Federal Reserve is the world’s largest, most important central bank, and we all need it to do its job well. The loss of the Fed’s independence will affect us all,” Bank of Canada Governor Tiff Macklem said Wednesday. The Canadian central bank kept rates steady ahead of the US central bank’s decision.
Macklem was one of the central bank chiefs who issued a joint statement earlier this month supporting Powell. Last September, Macklem said that Trump’s efforts to put pressure on the Fed were beginning to have an impact on the markets.
The Dow Jones Industrial Average is flat, as is the Nasdaq, and the S&P 500 is down 0.1 in afternoon trading.
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