The United States Federal Reserve left interest rates unchanged this month, keeping them at 3.50-3.75% after the latest Fed meeting. In December, the Fed cut interest rates by 25 bps. Fed Governors Chris Waller and Stephen Miran reportedly disagreed with the decision, preferring to cut rates by another quarter percentage point.
Officials upgraded their assessment of the economy to “solid” from “moderate” on the back of a strong third-quarter GDP reading and expectations for a strong fourth quarter. They still see inflation as “somewhat elevated,” but said the job market is showing “some signs of stabilization” and removed language that “downside risks to employment rose in recent months.” Officials simply stated the “Committee is attentive to the risks to both sides of its dual mandate.”
In addition, Fed Chair Jerome Powell explained that economic activity is expanding at “a solid pace.” However, activity in the housing sector remains weak, and the last quarter saw that the government shutdown slowed possible improvement in the jobs market and economy as a whole. These factors played a part in the Fed’s decision to keep interest rates unchanged. Inflation remains elevated compared to the Fed’s goal, but has slowly lowered since 2022.
Furthermore, the Fed’s decision to hold interest rates steady comes as Trump continues to call for lower rates, and tensions between the White House and the Fed reached new heights. Powell revealed earlier this month that the administration had opened a criminal investigation into testimony he gave last summer on the renovation of the Fed’s headquarters.
The Dow Jones and S&P 500 indices slipped a few points following the Fed’s decision to maintain current interest rates. The Fed did not give any updates on previously announced plans to have at least one additional interest rate cut in 2026.