Federal Reserve Keeps Benchmark Interest Rates Unchanged
In its 1st policy decision of 2026, the US Federal Reserve kept interest rates the same. The target range for the benchmark rate will stay between 3.5% and 3.75%. Officials said the choice shows caution in the face of high economic uncertainty.
Donald Trump has repeatedly called for more aggressive rate cuts, but this move went against those calls. Policymakers stressed that their job was to put price stability and job goals first. Most people in the market thought there would be a pause.
Source: Brookings Institution/Website
Central Bank Cites Uncertainty Despite Steady Economic Expansion
The Federal Reserve said in its statement that the economy is still growing at a good pace. Officials said that there were signs of stabilization in both employment indicators and broader output measures. But there is still a lot of uncertainty about the future.
The Fed said again that its long-term goal is to have the highest level of employment possible with inflation around 2%. Policymakers said they were ready to change policy if things changed significantly. Right now, caution is more important than the need for immediate easing.
Markets Expected Decision as Rate Cut Bets Pushed Later
Before the announcement, market prices showed that most people thought rates would stay the same. CME FedWatch data showed that there was a better than 97% chance of a hold decision. Futures markets still think there will be 2 rate cuts later in 2026.
The earliest expected cut is now priced in for June. Investors are still paying attention to new data on inflation and jobs. Changes in expectations depend a lot on how the economy is doing and how money is doing.
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Labor Market Cooling Reinforces Cautious Policy Stance
The Federal Reserve pointed out signs that the job market in the US is slowing down. In 2025, the economy added 584,000 jobs, which was the slowest annual growth since 2003. The monthly gains in payroll have slowed down a lot.
There were small gains in jobs in December after losses earlier in the quarter. While unemployment seems to be stabilizing, it could still get worse. Officials are keeping an eye on whether the job market gets worse in the next few months.
Corporate Layoffs and Shutdown Risks Cloud Outlook
Recent news from big companies has made the outlook less positive. Amazon and UPS, among other companies, said they would be laying off a lot of workers. Adopting automation and AI led to fewer jobs.
A possible federal government shutdown is another threat that is coming up. A long shutdown could hurt consumer spending and mess up payrolls. These kinds of risks make the Fed’s choice to avoid changing policy too soon even stronger.
Political Pressure Intensifies Around Fed Independence
President Trump has stepped up his attacks on the Federal Reserve and its leaders. He has repeatedly called for faster rate cuts and questioned the reasons behind the policies. The pressure makes people worry about the independence of the central bank.
Jerome Powell, the head of the Fed, has strongly defended institutional independence. He said that political interference makes monetary policy less effective. Powell told future leaders to stay out of politics that is elected.
Global Central Banks Watch US Policy Independence Closely
Policymakers around the world are keeping a close eye on what is happening with the Federal Reserve. Tiff Macklem, the Governor of the Bank of Canada, said that a less independent Fed would have effects around the world. The Fed’s job is to keep the world’s finances stable.
After the decision, global markets stayed calm. At noon, the major US stock market indexes were either flat or down a little. Stability showed that people were sure that data, not politics, would continue to guide monetary policy.
