The Federal Reserve left interest rates unchanged on Wednesday in a 10‑2 vote, signaling a pause in its recent cycle of monetary easing and pointing to signs that the labor market is stabilizing. The Federal Open Market Committee decided to keep the benchmark federal funds rate in a range of 3.50 percent to 3.75 percent after cutting rates three times by a quarter point each late in 2025.
Two Fed governors, Christopher Waller and Stephen Miran, dissented from the decision, both favoring another quarter‑point rate cut. The split among policymakers underscores ongoing debate at the central bank, which has alternated between votes for cuts, votes against cuts, and mixed views on the appropriate stance of monetary policy over the past several meetings.
In its official statement, the committee noted that job gains have stayed modest and that the unemployment rate appears to have stabilized. Fed officials also removed language from prior statements that had highlighted “increased downside risks to employment,” reflecting a somewhat more positive assessment of labor market conditions. The unemployment rate currently stands near 4.4 percent, low by historical standards.
The statement also described economic growth as “solid,” an upgrade from earlier language that described activity as “moderate.” While inflation remains above the Fed’s long‑run target of two percent, officials eliminated a reference in prior statements noting that inflation had moved up, suggesting some confidence that price pressures may be moderating.
Fed Chair Jerome Powell echoed this cautious optimism at a press conference, saying that recent data show “some signs of stabilization” in the economy and that overall activity has “clearly improved” since late last year. Still, he urged caution in overinterpreting short‑term data.
Since October 2024 the Fed has cut rates by 175 basis points, moving policy closer to what many officials view as a neutral level that neither stimulates nor restrains growth. Projections in December indicated that most policymakers expect at least one more rate cut this year, but recent speeches and comments from Fed officials suggest there is no urgent need to move again soon, especially given that inflation remains elevated and well above the central bank’s long‑run objective.
Underlying inflation data for December came in softer than expected, offering some encouragement. However, officials have noted that distortions from last year’s government shutdown are still working their way through economic readings and may not be fully understood until spring.
The two dissenters have been outspoken about their views. Waller has highlighted concerns about fragility in the labor market, while Miran has argued that the current rate is still well above neutral and that more aggressive cuts could be appropriate. Miran, who is on leave from his role as a top White House economic adviser, has suggested cutting the benchmark rate by as much as 150 basis points this year.
The rate decision comes amid unusual political pressure. The Justice Department recently opened a criminal investigation into Powell that he described as an attempt to intimidate the central bank. Powell’s term as Fed chair expires in May, and advisors to President Trump have indicated that a successor is nearing nomination, with Waller among those being discussed. Powell also attended a Supreme Court hearing last week related to Trump’s efforts to remove another Fed governor, adding to the extraordinary backdrop against which monetary policy is being set.
