Fed chair Jerome Powell (right) has come under increasing pressure from US President Trump (left) to expedite rate cuts. Credit: Federal Reserve/Flickr
The US Federal Reserve has kept interest rates on hold as central bankers signalled that they would remain cautious despite calls from US President Donald Trump to expedite the rate-cutting cycle.
At a meeting on Wednesday (28 January), the Federal Open Market Committee (FOMC) voted to maintain the target range for the federal funds rate at 3.5-3.75%.
In a statement from the bank, it said the committee "will carefully assess incoming data, the evolving outlook, and the balance of risks".
BoE warns rapid Fed rate cuts could put 'upward pressure' on UK inflation
Only two members of the FOMC voted against the option to keep rates unchanged, instead preferring to lower the target range by 25bps: the pro-Trump Stephen Miran and Christopher Waller.
The move followed a trio of quarter-point cuts in succession last year amid increasing signs of a weakening labour market.
Fed chair Jerome Powell explained that once prices fall, the Fed would look to trim once again. He said he expects to see "the effects of tariffs flowing through goods prices peaking and then starting to come down, assuming there are no new major tariff increases that are begun".
"If we see that, that would be something that tells us that we can loosen policy," Powell added.
Richard Carter, head of fixed interest research at Quilter Cheviot, said the decision to hold rates "makes sense" in a "pivotal" year for the Fed.
"The US economy is running hot at the moment, and Trump is likely to keep it that way as we head into the midterm elections towards the end of this year. The inflation outlook, consequently, is worsening and as such, the next cut from the Fed looks to be a couple of meetings away at the earliest," Carter explained.
Concerns FOMC meeting will be led by 'politics rather than policy'
However, he warned that markets "remain nervous about the potential erosion around the Fed's independence". Trump has publicly criticised Powell and his colleagues' approach to monetary policy, instead making the case for a lower interest rate environment to allow cheaper borrowing.
Powell's term as chair is set to end in May 2026, with a successor yet to be nominated.
Isaac Stell, investment manager at Wealth Club, said holding rates seemed "sensible" because "economic growth remains strong in the US but erratic policymaking from the president will continue to throw challenges the Fed's way".
Having eclipsed 7,000 for the first time on Wednesday, the S&P 500 dropped slightly to close flat for the day at 6,978.03, according to data from MarketWatch.
