Economy Showing Resilience
The US Federal Reserve has paused its interest rate cuts, keeping the key rate at roughly 3.6% after three reductions last year. Officials highlighted that the job market has stabilized and economic growth is now considered “solid,” up from last month’s “modest” assessment.
With hiring steady and no signs of a slowdown, the Fed sees little reason to move rates lower immediately.
Inflation Remains a Watchpoint
While further rate cuts are expected later in the year, most policymakers want to see inflation closer to the 2% target before acting. The Fed’s preferred inflation measure came in at 2.8% in November, slightly higher than the previous year.
Two officials, Governors Stephen Miran and Christopher Waller, disagreed with the hold decision and preferred a quarter-point reduction. Miran, appointed by former President Trump, has consistently pushed for bigger cuts, while Waller is being considered as a potential replacement for Chair Jerome Powell when his term ends in May.
Political Pressure and Next Steps
The Fed’s decision is likely to invite criticism from Trump, who has repeatedly argued that short-term rates should be cut more sharply. The central bank faces added scrutiny, with Powell recently revealing that the Justice Department issued subpoenas as part of a criminal investigation into his congressional testimony regarding a $2.5 billion building renovation.
Lower interest rates can reduce borrowing costs for mortgages, car loans, and business loans, though market conditions also play a role. The key question now is how long the Fed will maintain its current stance, as the rate-setting committee remains divided between officials prioritizing inflation control and those focused on supporting employment.
