Fed holds key interest rate steady as economic view improves

• The Fed removed a key clause indicating higher risk to the labor market than inflation, signaling a more balanced view of its dual mandate and suggesting a patient approach to future rate adjustments
• Two Trump-appointed governors, Stephen Miran and Christopher Waller, dissented by advocating for another quarter-point cut, marking unusual disagreement within the committee
• Markets expect no rate changes until at least June 2026, with futures pricing in at most two cuts in 2026 and none in 2027, as inflation remains near 3% versus the Fed's 2% target

Federal Reserve Holds Interest Rates Steady Amid Political Turbulence

Key Decision:

The Federal Reserve's FOMC voted to maintain its benchmark interest rate at 3.5%-3.75%, pausing after three consecutive quarter-point cuts. The decision met market expectations and reflects improved economic conditions.

Economic Assessment:

The Fed upgraded its growth outlook, noting economic activity is expanding at a "solid pace." GDP growth has been robust, with Q3 at 4.4% and Q4 tracking at 5.4% according to the Atlanta Fed. The committee removed previous language indicating greater concern about labor market weakness versus inflation risks, signaling a more balanced approach to its dual mandate.

However, inflation remains "somewhat elevated" at around 3%—above the Fed's 2% target. Job gains have slowed amid immigration crackdowns, though layoffs remain low with initial jobless claims at two-year lows.

Notable Dissents:

Governors Stephen Miran and Christopher Waller—both Trump appointees—voted against holding, preferring another quarter-point cut. This marks unusual dissent at recent meetings.

Political Context:

Chair Jerome Powell faces significant political pressure with only two meetings remaining before his term ends. The Justice Department has subpoenaed Powell regarding Fed headquarters renovations, which Powell attributes to Trump's efforts to control monetary policy. Trump has threatened to fire Powell and has moved to dismiss Governor Lisa Cook, with that case pending before the Supreme Court.

Market Outlook:

The statement provided minimal forward guidance, with markets expecting no rate changes until at least June. Futures markets price in at most two cuts in 2026 and none in 2027. BlackRock's Rick Rieder is considered the leading candidate to succeed Powell.

Trump's tariffs remain a background concern, with Fed economists viewing them as temporary inflationary pressures.