A Pause After Last Year’s Cuts
The US Federal Reserve has decided to keep interest rates unchanged, holding its key rate at around 3.6% after cutting it three times last year. The move reflects growing confidence among policymakers that the economy is on solid ground. In its latest statement, the Fed said economic growth remains strong and noted that the job market appears to have stabilised, an improvement from earlier assessments that described growth as only modest.
With hiring holding up and no clear signs of economic strain, officials see little urgency to push rates lower right now.
Inflation Still Looms Large
While most Fed policymakers expect borrowing costs to fall later this year, many are waiting for clearer evidence that inflation is easing toward the central bank’s 2% target. The Fed’s preferred inflation gauge showed prices rising 2.8% in November, slightly higher than a year earlier.
The decision to pause was not unanimous. Governors Stephen Miran and Christopher Waller voted in favour of another quarter-point cut. Miran, appointed by President Donald Trump last September, has repeatedly argued for deeper reductions. Waller, meanwhile, is being considered as a potential replacement for Fed Chair Jerome Powell when his term ends in May.
Political Pressure and an Uncertain Path Ahead
The Fed’s choice to stand pat is likely to intensify criticism from President Trump, who has openly challenged Powell for months over the pace of rate cuts. This week’s meeting took place amid unusual political pressure, with Powell recently confirming that the Fed had received subpoenas from the Justice Department related to an investigation into his congressional testimony on a $2.5 billion renovation project.
Interest rate cuts typically make borrowing cheaper for households and businesses, lowering costs for mortgages, car loans and corporate lending, although market forces also play a role. The key question now is how long the Fed will stay on hold. Policymakers remain divided between those who want to wait for inflation to cool further and those who believe additional cuts are needed to keep the labour market strong.
