Fed Holds Rate Steady

[Andrew Postell]

As expected, the Federal Reserve held its benchmark policy rate steady at 3.50%–3.75% in a 10–2 decision, opting to pause after last year’s easing cycle. Governors Christopher Waller and Stephen Miran dissented, favoring an additional 25bp cut, underscoring that the committee remains divided on the appropriate degree of restraint. While the rate decision itself was widely expected, the statement delivered a modestly more confident assessment of economic conditions, with the Fed upgrading its characterization of growth to say activity has been expanding at a “solid pace” and maintaining that inflation “remains somewhat elevated.”

Notably, the Fed removed prior language highlighting rising downside risks to employment, signaling a more balanced view of its dual mandate. The labor market description was also subtly revised: job gains are now described as having “remained low,” while the unemployment rate is said to have shown “some signs of stabilization,” a shift from December’s acknowledgment that joblessness had edged higher. At the same time, the committee eliminated references suggesting inflation had recently moved up, reinforcing the perception that price pressures, while still above target, are no longer reaccelerating.

Taken together, the statement reads as a cautious but constructive hold—less dovish than markets might have hoped, but also lacking urgency to tighten further. With growth proving resilient and labor conditions appearing to stabilize, the Fed appears comfortable staying in wait-and-see mode, letting prior cuts continue to work through the system while assessing whether inflation continues to grind lower. For now, policy remains restrictive, but the tone suggests the bar for additional easing may depend less on labor market deterioration and more on clearer progress toward the inflation target.

Markets are mostly unchanged, but we are seeing slightly higher short-term interest rates – stocks are bouncing around a bit as well. Mortgages are unchanged. BMO’s side-by-side statement comparison is attached. Powell presser is up next.

https://www.cnbc.com/2026/01/28/irs-tax-season-2026.html

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