Fed holds rates steady, points to improvements in the unemployment rate

U.S. Federal Reserve chair Jerome Powell speaks during a press conference at the Federal Reserve Board Building in Washington, D.C., on Jan. 28, 2026. Photo by SAUL LOEB /AFP via Getty Images

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United States Federal Reserve officials left interest rates unchanged and pointed to improvements in the U.S. economy as they signalled a more cautious approach to potential future adjustments.

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The Federal Open Market Committee (FOMC) voted 10-2 Wednesday to hold the benchmark federal funds rate in a range of 3.5 per cent  to 3.75 per cent. Governors Christopher Waller and Stephen Miran dissented in favour of a quarter-point reduction.

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In a post-meeting statement, policymakers said “job gains have remained low, and the unemployment rate has shown some signs of stabilization.” Officials also dropped language pointing to increased downside risks to employment that had appeared in the three previous statements.

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The upgraded assessment of the labour market is likely to hold expectations for a near-term rate cut at bay, despite escalating pressure from the administration of U.S. President Donald Trump. Heading into the meeting, investors saw another cut as unlikely until at least June.

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The S&P 500 and Treasuries remained lower while the dollar strengthened.

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Wednesday’s decision was widely expected after policymakers lowered interest rates at three consecutive meetings in the closing months of 2025. Based on rate projections issued in December, most officials see the Fed cutting again later this year. But given concerns over still-elevated inflation and signs of stability in the labour market, several policymakers recently indicated they saw no immediate need for an additional reduction.

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Policymakers, in their statement, marked up their view of the economy, describing the pace of growth as “solid.” Since October they had said the economy was expanding at a “moderate pace.” They also dropped a reference to inflation having moved up.

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Fed chair Jerome Powell is scheduled to hold a press conference at 2:30 p.m. in Washington. Investors will watch for guidance on how long the Fed may hold rates steady, and what economic conditions might prompt the resumption of cuts.

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Powell will likely also face questions about the extraordinary political backdrop following the revelation the U.S. Department of Justice has opened a criminal investigation into the Fed chief.

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The DOJ earlier this month issued subpoenas to the Fed, prompting Powell to issue an unusually forceful response, accusing the administration of using the investigation as a form of intimidation.

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Powell’s press conference also follows his decision to attend a U.S. Supreme Court hearing last week over Trump’s attempt to fire Fed governor Lisa Cook. The move took on heightened significance amid the DOJ probe. During the hearing, justices appeared wary of Trump’s attempt to remove Cook and its potential implications for the central bank’s independence.