The Federal Reserve kept interest rates unchanged Wednesday, hitting the pause button at its first meeting this year and signaling risks to the economy are dropping.
The widely expected decision to enter a holding pattern comes 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 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.
“The economy has once again surprised us with its strength,” Fed Chair Jerome H. Powell told reporters, saying the risks of both higher inflation and a weaker labor market have eased. While some tension remains between the Fed’s dual goals of plentiful jobs and stable prices, Powell said that tension had diminished.
“We still have some tension between employment and inflation, but it’s less than it was,” he said.
Fed governor Christopher Waller, who is under consideration to replace Powell as Fed chief, dissented from the decision, preferring to lower rates again. He was joined by Stephen Miran, an economic adviser of the president’s who is 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 and Powell told reporters the decision had “broad support” among the group of 19 policymakers who participate in policy meetings.
In a statement announcing the pause, the central bank said economic growth has been “solid,” while the unemployment rate has shown “some signs of stabilization.” Both marked improvements from December, when the central bank said the economy was expanding merely at a “moderate” clip and unemployment had “edged up.”
The unemployment rate ticked down to 4.4 percent in the latest data, while inflation has held at 2.7 percent— a level officials say is somewhat elevated but has shown signs of leveling off from 3 percent in January of last year, when President Donald Trump took office.
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 percent 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.
When asked about the Justice Department’s criminal investigation, Powell demurred repeatedly on Wednesday. He told reporters he had “nothing for you on that” at least four times during the news conference, declining to answer such questions as what prompted him to release a Jan. 11 video statement or whether the central bank had responded to subpoenas.
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.
Powell, who attended last week’s oral arguments in the Cook case, described the dispute as “perhaps the most important legal case in the Fed’s 113-year history.” Asked why he attended, he said: “As I thought about it, I thought it would might be hard to explain why I didn’t attend.”
Though Treasury Secretary Scott Bessent criticized Powell’s attendance, the Fed chief declined to respond to the remarks. “I don’t respond to comments by other officials,” he said.
Meanwhile, Trump, who has been open about his desire to reshape the Fed by appointing 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 said ahead of this week’s Fed meeting, 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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