Why the Central Bank Is Standing Still
The US Federal Reserve decided on Wednesday to hold interest rates steady, pressing pause after cutting rates three times last year. Its benchmark rate remains at around 3.6%, a move that reflects growing confidence in the economy’s momentum.
In its statement, the Fed said the labour market appears to have stabilised and described economic growth as “solid,” an upgrade from the “modest” pace it cited a month earlier. With hiring holding up and growth continuing, policymakers see little urgency to push borrowing costs lower right now.
Inflation Still the Missing Piece
While most Fed officials still expect rates to come down later this year, many want clearer signs that inflation is easing toward the central bank’s 2% target. The Fed’s preferred inflation gauge stood at 2.8% in November, slightly higher than a year earlier and still uncomfortably above target.
Not everyone agreed with the decision to stand pat. Governors Stephen Miran and Christopher Waller dissented, arguing for another quarter-point cut. Miran, appointed by President Donald Trump last September, has consistently pushed for deeper reductions, while Waller is reportedly being considered as a possible successor to Fed Chair Jerome Powell when his term ends in May.
Politics, Pressure and What Comes Next
The Fed’s decision is likely to draw fresh criticism from Trump, who has repeatedly attacked Powell for not cutting rates more aggressively. This week’s meeting took place amid intense political pressure, with Powell revealing earlier this month that the Fed had received Justice Department subpoenas related to his congressional testimony about a $2.5 billion building renovation.
Interest rates set by the Fed influence borrowing costs across the economy, including mortgages, car loans and business lending, though market forces also play a role. The big question now is how long the Fed will stay on hold. Policymakers remain divided between those who want to wait until inflation cools further and those who believe lower rates are needed sooner to support jobs and growth.
