Fed Holds Rates Steady
The Federal Reserve has entered a new pause in its easing cycle, holding interest rates steady for the first time since July and signalling little urgency to resume cuts after three contentious reductions last year. The Federal Open Market Committee voted 10–2 to keep the federal-funds rate in a range of 3.5% to 3.75%, a decision that was widely anticipated and generated minimal market reaction. Equity markets were little changed, and the 10-year Treasury yield edged up modestly to around 4.25%.
Fed Chair Jerome Powell said recent economic data had been more encouraging than at the previous meeting, pointing to stronger growth and tentative signs of stabilization in the labour market. These developments have given policymakers greater confidence to remain on hold, waiting for clearer evidence either of renewed labour-market weakness or more decisive progress on inflation toward the Fed’s 2% target. Powell emphasized that the Fed is not setting a specific test or timeline for further cuts, noting instead that policy is “well positioned” to respond as conditions evolve. The decision reflects the Fed’s ongoing balancing act. Inflation slowed meaningfully in 2023 and 2024 but has since stalled above target, arguing for patience.
At the same time, job growth has cooled sharply over the past year, prompting concerns about economic momentum and leading to last year’s rate cuts. More recently, however,
unemployment has stabilized, reducing the urgency for further easing. Powell described the current environment as “challenging and quite unusual,” with lingering tension between inflation and employment objectives, though less acute than before.
