The Federal Reserve voted Wednesday to hold rates steady as inflation remains elevated, ending a streak in which it cut interest rates in three successive meetings of its monetary policy committee.
After a two-day meeting in Washington, the committee announced it would hold its rate target at a range of 3.50% to 3.75%. Investors had expected that outcome, but President Donald Trump has pushed hard for more aggressive rate cuts.
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Fed governors Stephen Miran, who was recently nominated by Trump and confirmed by the Senate, and Christopher Waller dissented on the rate decision. They preferred a quarter-percentage-point cut.
The decision not to cut rates comes at a time of upheaval at the Fed and for Chairman Jerome Powell. Earlier this month, in an astonishing video statement, Powell disclosed a Justice Department investigation into his testimony about cost overruns on a Fed construction project and said that the inquiry was an effort by Trump to sway him to change interest rate policy.
If Powell’s claim is true, it would be an unprecedented intervention into the traditionally independent workings of the Fed by the executive. News of the investigation somewhat overshadowed the monetary policy implications of the meeting.
Nonetheless, 2026 is likely to feature fewer interest rate revisions, as the central bank works to depress inflation, which is still running above the Fed’s 2% long-term target.
The Wednesday decision to hold interest rates steady comes amid a slowdown in the labor market that some argue should necessitate lower interest rates. Still, the softening of the labor market has not progressed to a point that would force the Fed to cut rates rapidly.
The economy added 50,000 jobs in December 2025, and the unemployment rate fell to 4.4%. But with revisions to the numbers for October and November, the three-month moving average of job gains was minus-22,000 in December. Despite that, private-sector job growth has been better, averaging nearly 30,000 over the past three months.
Giving further cover for Fed officials to hold rates steady is the economy’s stronger-than-expected growth. After a mild contraction in the first quarter of 2025, GDP rose 3.8% in the second quarter and 4.4% in the third quarter, well above what forecasters were expecting.
Also, inflation is still too high to cut rates.
Inflation rose 2.7% the year ending in December, the Bureau of Labor Statistics reported this month in an update to the most closely watched inflation gauge, the consumer price index.
And, in the personal consumption expenditures index, which is the Fed’s preferred inflation gauge, inflation rose one-tenth of a percentage point to 2.8% for the year ending in November 2025.
If inflation begins to fall back to the Fed’s 2% level and the labor market continues to soften, it could prompt more rate cuts this year, but in some sense, the Fed is in wait-and-see mode when it comes to monetary policy.
Every other meeting, Fed officials are surveyed on where they predict metrics such as inflation, GDP, and unemployment will be in the coming months and years. The most recent update was at the central bank’s December meeting.
Fed officials said they see inflation, as gauged by the personal consumption expenditures index, falling to 2.4% by the end of this year.
The officials also predicted that the unemployment rate would be at 4.4% by the end of 2026.
In terms of GDP growth, they predict 2.3% GDP growth this year.
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Also looming in the coming months is the fact that Powell’s term as chairman will come to an end. Trump is reportedly considering former Fed governor Kevin Warsh, Director of the National Economic Council Kevin Hassett, and BlackRock chief fixed-income strategist Rick Rieder for the role. The desire for lower interest rates is a likely litmus test for the candidates.
Whoever the candidate is will undoubtedly face tough questions on Fed independence and interest rates during the confirmation process. Retiring Sen. Thom Tillis (R-NC), a member of the Senate Banking, Housing, and Urban Affairs Committee, vowed to block Trump’s nominees to the Fed and whoever he nominates to replace Powell until the legal matter has concluded.
