A Pause After Last Year’s Cuts
The US Federal Reserve decided on Wednesday to leave interest rates unchanged, keeping its key rate at around 3.6% after cutting it three times in 2024. The central bank pointed to signs that the job market has stabilised and upgraded its view of economic growth, describing it as “solid” rather than merely “modest.”
With the economy continuing to expand and hiring showing no clear signs of weakening, Fed officials see little urgency to move rates lower in the near term.
Inflation Still the Sticking Point
Although most policymakers expect borrowing costs to come down later this year, many want clearer proof that inflation is easing toward the Fed’s 2% target. By the central bank’s preferred measure, inflation stood at 2.8% in November, slightly higher than a year earlier.
The decision was not unanimous. Governors Stephen Miran and Christopher Waller voted for another quarter-point cut. Miran, appointed by President Donald Trump last September, has consistently argued for more aggressive reductions. Waller is also being discussed as a possible replacement for Fed Chair Jerome Powell, whose term ends in May.
Politics, Pressure and What Comes Next
The Fed’s choice to hold rates is likely to draw more criticism from Trump, who has repeatedly attacked Powell for not cutting rates faster. This week’s meeting took place under intense political pressure, with Powell confirming earlier this month that the Fed had received subpoenas from the Justice Department linked to a criminal investigation into his congressional testimony about a $2.5 billion building renovation.
When the Fed does cut its key rate, it typically helps lower costs for mortgages, car loans and business borrowing, though market conditions also play a role. The central question now is how long the pause will last, as policymakers remain divided between those who want to wait for inflation to fall further and those who believe lower rates are needed to keep hiring strong.
