The Federal Reserve kept interest rates unchanged Wednesday, hitting the pause button at its first meeting this year despite pressure from President Donald Trump to slash rates further.
The widely-expected decisioncomes after the central bank cut rates three times at the end of 2025, moves that officials and economists say were aimed at insulating the labor market as hiring slowed. With job growth still decelerating but the economy showing few signs of distress, policymakers now say they can afford to be patient as they watch whether inflation continues to cool.
Fed governor Christopher Waller, who is under consideration to replace Jerome H. Powell as Fed Chair, dissented from the decision, preferring to lower rates again. He was joined by Stephen Miran, a Trump economic adviser on leave from the White House who is also on the Fed board.
Still, the Fed holding steady signaled most officials were confident with where the central bank has set the cost of borrowing. Economic activity has been “solid,” the Fed said in a statement, while the unemployment rate has shown “some signs of stabilization,” an improvement from previous language that warned the rate had “edged up.”
“Uncertainty about the economic outlook remains elevated,” Federal Reserve officials said in the statement.
Attention now turns to what Powell says about the economy’s path and how long policymakers may be prepared to hold rates steady, as the central bank wraps up its two-day policy meeting and Powell holds a news conference.
After lowering rates by a total of three-quarters of a percentage point last year, the Fed has set its benchmark interest rate in a range of 3.5 to 3.75 percent, the lowest level in nearly three years. The rate influences what millions of households and businesses pay to borrow, including for mortgages, credit cards and other loans.
The decision comes amid heightened political and legal scrutiny of the central bank: Trump has repeatedly pressed Powell to cut rates to as low as 1 percent, a level economists say is not supported by current economic conditions. Powell has generally declined to respond to the president’s attacks, but this month publicly disclosed a criminal probe tied to the Fed’s office renovations that he characterized as an attempt to undermine the central bank’s independence.
A separate high-profile dispute involving the president’s attempted firing of Fed governor Lisa Cook has added to the political pressure against the Fed, though the case has played to the Fed’s advantage, at least so far. During Supreme Court arguments last week, nearly all of the justices signaled skepticismthat Trump could remove Cook while her legal challenge proceeds, suggesting that the Fed governor is likely to remain on the board for now — a development that would limit the president’s leverage over the central bank in the near term.
Meanwhile, Trump, who has been open about his desire to reshape the Fed with allies, is also expected to soon name a nominee to succeed Powell when his term as chair ends mid-May.
In projections released at the Fed’s last policy meeting in December, 12 of the Fed’s 19 policymakers said they expected at least one additional rate cut this year. But that outlook masked deep divisions within the policy committee: Two officials opposed the December cut outright, and several others backed it reluctantly, according to minutes of the meeting.
As a result, officials are likely to set a higher bar for further easing, economists say, seeking broader agreement and clearer evidence that inflation is continuing to cool before moving again.
“After three quarter-point ‘risk management’ cuts last year, many Fed officials now see this as a good time to pause,” JPMorgan Chase economists noted ahead of the meeting, citing reluctance among some policymakers who supported the December cut with reservations.
Some economists argue that by cutting rates last fall, the Fed effectively “bought insurance” against a softening labor market, easing policy more quickly despite elevated inflation.
That decision helped cushion employment as hiring slowed, but it also left price pressures easing more gradually than policymakers had once expected, forcing officials to reassess how much that insurance ultimately cost.
“I don’t think the Fed is in a position to realign policy until they see the durable part of inflation — the sticky services side — come down,” said Vincent Reinhart, chief economist at BNY Investments.
Services prices account for roughly 70 percent of the consumer price index and have hovered slightly above 3 percent, a dynamic that economists say could be complicated further by tariffs ultimately borne by U.S. consumers.
Until that component shows sustained improvement, analysts say, the Fed is likely to remain on hold through early meetings and reassess later in the year.
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