US Fed holds rates at 3.5%-3.75% as inflation stays elevated and job gains cool

• The Fed voted 10-2 to hold rates, with two dissenters (Stephen Miran and Christopher Waller) favoring an immediate cut due to labor market concerns
• Economic growth hit 4.4% in Q3 2025, nearly double the long-term trend, while unemployment has stabilized and job gains 'remained low'
• The decision reinforces Fed independence amid political pressure, as Chair Powell faces calls from the White House for cuts and Justice Department subpoenas

Summary

The US Federal Reserve held its benchmark interest rate steady at 3.5%-3.75% on January 28, 2026, halting the rate-cutting cycle that dominated 2025. The decision, supported by 10 of 12 voting members, reflects a complex economic landscape marked by solid growth, persistent inflation, and cooling labor markets.

Key Economic Indicators:

• Third-quarter GDP growth reached 4.4%, nearly double the long-term trend
• Inflation remains "somewhat elevated" above the Fed's 2% target
• Job gains have stalled, with unemployment stabilized but not improving
• The Fed previously cut rates in September, October, and December 2025

Market Implications:

Markets now expect only one potential rate cut in 2026, likely mid-year, though this remains uncertain. The "higher for longer" stance creates headwinds for mortgage seekers and variable-rate borrowers while benefiting savers and money market fund investors.

Internal Fed Dynamics:

Two dissenting votes came from Stephen Miran and Christopher Waller, who favored immediate cuts, highlighting internal divisions. Some officials worry about labor market cooling, while others prioritize controlling inflation.

Political Context:

Fed Chair Jerome Powell faces pressure as the administration signals plans for a new chair during his final months. The Justice Department has issued subpoenas to the Fed, raising independence concerns. Powell emphasized decisions are based on economic evidence, not political pressure, reinforced by maintaining rates despite White House calls for cuts.

The Fed's cautious approach leaves the door open for future adjustments based on incoming data, signaling flexibility rather than a predetermined policy path.