Fed Holds Rates Steady as Powell Nears Exit

Fed Holds Rates Steady as FOMC upgrades growth and cites 2.8% inflation, refocusing traders on the timing of 2026 rate cuts and Fed independence.

January 28, 2026·2 min read
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Flat-vector policy ledger with split binding showing Fed Holds Rates Steady amid dissent, inflation and political scrutiny.

KEY TAKEAWAYS

  • FOMC held the federal funds rate at 3.5%-3.75% in a 10-2 vote.
  • Committee upgraded growth to 'solid' and cited 2.8% inflation in Nov. 2025.
  • Most officials expect further cuts in 2026; economists forecast two, likely in or after June.

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The Federal Reserve held its benchmark federal funds rate at 3.5%–3.75% after the Federal Open Market Committee (FOMC) vote on January 28, 2026. Officials expressed differing views on the timing of future cuts as Chair Jerome Powell approaches the end of his term amid political scrutiny, shifting market focus to the path of easing in 2026.

FOMC Decision and Dissent

The FOMC voted 10-2 to maintain the current rate, following three consecutive 25-basis-point cuts in September, October, and December 2025. Governors Stephen Miran and Christopher Waller dissented, favoring a 25-basis-point reduction. The split highlights ongoing debate within the committee over the pace of policy easing.

Economic Outlook and Political Pressure

The committee upgraded its assessment of economic growth to "solid" from "modest," described the labor market as "stabilized" with low job gains, and noted inflation at 2.8% in November 2025, above the Fed’s 2% target. Consumer confidence reached an 11- to 12-year low in January 2026.

Most officials expect further rate cuts in 2026. Economists forecast two reductions, likely in or after June, and the December 2025 dot plot showed 12 of 19 participants supporting at least one cut. The committee remains divided between those seeking greater confidence that inflation will sustainably reach target and those prioritizing support for hiring.

Chair Powell’s term expires in May 2026. President Trump is expected to name his replacement soon, with Christopher Waller and Rick Rieder among the potential candidates. The Fed faces legal pressure: the Justice Department issued subpoenas on January 11 related to Powell’s testimony about a roughly $2.5 billion renovation of the Fed’s Washington headquarters. Powell described the subpoenas as a pretext to punish the Fed for not cutting rates more quickly. Meanwhile, the Supreme Court heard arguments in a case stemming from Trump’s 2025 attempt to remove Governor Lisa Cook over mortgage-fraud allegations. Oral arguments suggested she will remain in place pending resolution.

The committee’s split, the upgrade to growth alongside persistent inflation, and the surrounding political and legal scrutiny focus investor attention on the timing of policy easing and the Fed’s institutional independence.

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