Key Points

  • The Federal Reserve on Wednesday (January 28) held its main interest rate steady in the 3.5% to 3.75% range despite two dissenting votes, noting solid economic growth and signs of stabilizing unemployment.
  • Policymakers warned that inflation remains above the 2% target level, but their concerns about labor market weakness are less intense than when they cut the benchmark rate at three consecutive meetings in the final three months of last year.
  • "The economy is growing at a solid pace, the unemployment rate is broadly stable, and inflation remains somewhat elevated," Fed Chair Jerome Powell said at a post-meeting press conference. "Upside risks to inflation and downside risks to employment have both diminished but still exist, so there remains some tension between achieving the dual mandate of price stability and maximum employment."

In-Depth Analysis

For months, Powell has faced pressure from President Donald Trump to cut the main interest rate to as low as 1%. Powell declined on Wednesday to say when he expects the central bank to resume rate cuts.

Powell and his policy colleagues aim to balance the dual mandate set by Congress, supporting the unstable job market through monetary easing while avoiding fueling inflation.

Price pressures have changed little in recent months. The Fed's preferred inflation gauge—the Personal Consumption Expenditures (PCE) price index excluding volatile food and energy prices—rose 2.8% year over year in November, and according to themedian forecastreleased by Fed officials last month, that gauge could fall to 2.5% by the end of this year.

"Inflation has fallen significantly from its mid-2022 peak but remains somewhat above our 2% longer-run goal," Powell said.

Meanwhile, the December unemployment rateedged down to 4.4% from 4.5% in November, but remains above the 4% level of January 2025.

In addition, U.S. employers hired fewer workers than expected last month, with nonfarm payrolls increasing by only 50,000.

Fed Governor Stephen Miran and Christopher Waller dissented from the policy decision, advocating for a 25-basis-point cut to the 3.25% to 3.5% range. Both were appointed by Trump and have repeatedly expressed concerns about signs of labor market weakness in recent months.

Powell said recent data "show some signs of stabilization in the labor market," but "there are also signs of continued cooling."

Powell said the effect of tariffs imposed by the Trump administration pushing up goods prices could begin to fade around mid-2026. "If we see that, it will tell us we can ease policy," he said.

Powell also highlighted the surprising resilience of the U.S. economy. "The economy has surprised us again with its strength—this is not the first time," he said, citing the boost from artificial intelligence data center construction.

"Although some surveys show households are pessimistic about the economy, employment, and prices, overall consumer spending data are performing well," he said.

Weighed down by sluggish hiring and high prices, the consumer confidence index fell to itslowest level in more than a decadethis month, the Conference Board said Tuesday.

According to the Conference Board, the index based on household confidence surveys fell to 84.5 this month from 94.2 in December.

"Consumer confidence declined sharply in January, with consumers' concerns deepening about both current conditions and future expectations," Dana Peterson, chief economist at the Conference Board, said in a statement Tuesday.

She added: "Mentions of prices and inflation, oil and gas prices, and food and grocery prices remained elevated. Mentions of tariffs and trade, politics, and the labor market also increased in January, while mentions of health insurance and war rose slightly."

This article is an update to a previous report.