Economy Shows Enough Strength to Wait
The US Federal Reserve chose to leave interest rates unchanged on Wednesday, keeping its key rate at around 3.6% after cutting it three times last year. In its latest statement, the central bank pointed to signs that the labour market has steadied and upgraded its assessment of economic growth from “modest” to “solid.”
With the economy expanding at a healthy pace and no clear slowdown in hiring, policymakers see little urgency to move quickly on further rate cuts.
Inflation Keeps Policymakers Cautious
Most Fed officials still expect borrowing costs to come down later this year, but many want clearer proof that inflation is cooling 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 hold rates was not unanimous. Governors Stephen Miran and Christopher Waller dissented, arguing for another quarter-point cut. Miran, appointed by President Donald Trump in September, has repeatedly pushed for deeper reductions. Waller, meanwhile, is being considered as a possible replacement for Fed Chair Jerome Powell when his term ends in May.
Political Pressure and the Path Ahead
The Fed’s pause is likely to draw fresh criticism from Trump, who has openly criticised Powell for not cutting rates more aggressively. This week’s meeting took place under heavy political pressure, with Powell recently confirming that the Justice Department had issued subpoenas linked to a criminal investigation into his congressional testimony about a $2.5 billion building renovation.
When the Fed lowers its key rate, borrowing costs for mortgages, car loans and business lending often fall as well, although market conditions also play a role. The big question now is how long the central bank will stay on hold. Policymakers remain divided between those who want to wait until inflation cools further and those who believe additional cuts are needed to support jobs and growth.
