U.S. Federal Reserve Holds Rates Steady at 3.50-3.75% Range

Washington D.C. - The Federal Open Market Committee maintained the target range for the federal funds rate at 3-1/2 to 3-3/4 percent on Wednesday.

The decision came after the Fed cut rates by a total of 0.75 percentage points over its previous three meetings.

Federal Reserve Chair Jerome H. Powell said at a news conference that the central bank’s current policy is near what officials consider a neutral level — neither stimulating nor restraining the economy — and should allow inflation to resume falling toward the Fed’s 2 percent target once temporary effects from tariff increases fade.

Economic data suggest the economy expanded at a solid pace through late 2025 and into early 2026, supported by consumer spending and business investment.

The housing sector remains weak, and a temporary federal government shutdown is likely to have affected economic activity in the fourth quarter.

Inflation remains elevated relative to the Fed's 2 percent target. The central bank's preferred inflation measure rose 2.9 percent in December from a year earlier, while core inflation, which excludes food and energy prices, rose 3 percent.

Mr. Powell attributed the inflation largely to price increases for goods resulting from tariffs, noting that inflation continues to decline in the services sector.

The labor market shows signs of stabilizing after a period of gradual weakening.

The unemployment rate stood at 4.4 percent in December.

Total nonfarm payrolls declined by an average of 22,000 per month over the last quarter, while private payrolls rose by an average of 29,000 per month.

Fed officials said the slowing job growth partly reflects a decline in labor force growth due to lower immigration and lower labor force participation rates.

The vote to maintain the rate was 10-2. Stephen I. Miran and Christopher J. Waller dissented, both preferring to lower the target range by 1/4 percentage point at this meeting.

The Board of Governors unanimously voted to maintain the interest rate paid on reserve balances at 3.65 percent, effective January 29, 2026.

The Committee also directed the Open Market Desk to continue increasing holdings of Treasury bills to maintain ample reserves and to roll over all principal payments from Treasury holdings.

The committee reaffirmed its long-term goals, including a 2 percent inflation target.