US Fed holds rates steady as Powell stays silent on Trump attacks

WASHINGTON – Federal Reserve officials left interest rates unchanged and pointed to improvements in the US economy as they signalled a more cautious approach to potential future adjustments.

The Federal Open Market Committee voted 10-2 on Jan 28 to hold the benchmark federal funds rate in a range of 3.5 per cent to 3.75 per cent. Governors Christopher Waller and Stephen Miran dissented in favour of a quarter-point reduction.

In a post-meeting statement, policymakers said “job gains have remained low, and the unemployment rate has shown some signs of stabilisation”. Officials also dropped language pointing to increased downside risks to employment that had appeared in the previous three statements.

The upgraded assessment of the labour market is likely to keep expectations for a near-term rate cut at bay, despite escalating pressure from the Trump administration. Investors see another cut as unlikely until at least June.

The US dollar edged lower from the day’s high, which came after Treasury Secretary Scott Bessent touted a strong-dollar policy earlier. The S&P 500 was also little changed following the widely expected decision.

In remarks to reporters after the meeting, Federal Reserve chairman Jerome Powell further talked up a “clear improvement” in what was expected for the US economy in the year ahead.

“The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter for labour demand and for employment over time,” he said.

He reiterated that the labour market has shown signs of stabilising, but added, “I wouldn’t go too far with that”, noting that there were also signs of continued cooling.

He demurred when asked what it may take for the committee to cut again.

“We’re not trying to articulate a test (for) when to next cut or whether to cut at the next meeting,” he said.

“What we’re saying is (that) we’re well positioned as we make decisions meeting by meeting, looking at the incoming data, evolving outlook and all that.”

Based on rate projections issued in December, most officials see the Fed cutting again later in 2026. But given concerns over still-elevated inflation and signs of stability in the labour market, several policymakers recently indicated that they see no immediate need for an additional reduction.

Policymakers, in their statement, marked up their view of the economy, describing the pace of growth as “solid”. Since October, they said, the economy has been expanding at a “moderate pace”. They also dropped a reference to inflation having moved up.

On inflation, Mr Powell said the overall story was “modestly positive”, despite his estimate that the Fed’s favoured gauge of core price increases will likely end 2025 at 3 per cent, a full percentage point above target.

But, he added, “most of the overshoot was in goods prices, which we think is related to tariffs, and ultimately, we think those will not result in inflation, as opposed to a one-time price increase”.

Political backdrop

In the opening portion of his press conference, Mr Powell avoided answering most questions about the extraordinary political backdrop overshadowing the central bank, including questions about the Department of Justice’s (DOJ) criminal investigation into the Fed chairman.

Earlier in January, the DOJ issued subpoenas to the Fed, prompting Mr Powell to issue an unusually forceful response, accusing the administration of using the investigation as a form of intimidation.

Without commenting directly on pressure from the Trump administration over the rates, Mr Powell repeated his defence of central bank independence. 

“The point of independence is not to protect policymakers,” he said. “It’s just an institutional arrangement that has served the people well.”

When asked if he had decided on whether to remain on the Fed’s board of governors after his term as chairman expires in May, Mr Powell said no and declined to say when he may decide.

Mr Powell did comment on his decision to attend a Supreme Court hearing last week over US President Donald Trump’s attempt to fire Fed governor Lisa Cook. 

“That case is perhaps the most important legal case in the Fed’s 113-year history,” Mr Powell said. “I thought it might be hard to explain why I didn’t attend.”

Comforting data

Officials have broadly coalesced around the view that Fed policy is well positioned for now, offering them time to assess incoming information on inflation and the labour market.

That represents a shift from recent months, when disagreements over the economic outlook led to a spirited debate about the appropriate path for rates. Some called firmly for cuts to support a labour market they viewed as fragile. Others urged caution, citing inflation as the more pressing concern.

Fresh economic data has offered some comfort for both camps. While hiring remains anaemic, layoffs have also stayed low and, in December, the unemployment rate ticked lower, suggesting the labour market may be stabilising.

Figures on consumer prices for December, meanwhile, showed underlying inflation was softer than anticipated. Still, distortions to price measurements from the 2025 government shutdown will not fully unwind until the spring of 2026, meaning Fed officials may view the data with limited confidence.

Several policymakers have argued that 175 basis points of Fed rate cuts in the last 16 months have brought policy much closer to the so-called neutral level, which neither stimulates nor restrains the economy, further reducing the urgency for more cuts.

An exception is Mr Miran, who is on unpaid leave as a top White House economic adviser. He estimates that the Fed’s benchmark rate remains well above a neutral setting and said it should slash it by 150 basis points in 2026.

Mr Waller, who is among Mr Trump’s top candidates to replace Mr Powell when his term as chairman expires, has repeatedly raised concerns about labour market fragility, but more recently signalled that the Fed need not rush to lower rates again. BLOOMBERG