The Federal Reserve held interest rates unchanged on Wednesday in a 10-2 vote, with officials pointing to signs of stabilization in the labor market as they signaled a pause in monetary easing.
The Federal Open Market Committee maintained the benchmark federal funds rate in a range of 3.5 percent to 3.75 percent, following three consecutive quarter-point cuts at the end of 2025. Governors Christopher Waller and Stephen Miran dissented, favoring a quarter-point reduction.
The split decision shows that the Fed remains divided. December’s meeting saw three dissents, but officials voted in different directions, with two opposed any cut and one favored a larger reduction.
In its post-meeting statement, the committee said “job gains have remained low, and the unemployment rate has shown some signs of stabilization.” Officials also dropped language from previous statements that had flagged “increased downside risks to employment.”
The changes reflect an improved assessment of labor market conditions. The unemployment rate currently stands at 4.4 percent, historically low by pre-pandemic standards. The rate had risen to 4.5 percent in November.
The committee also upgraded its view of economic growth, describing the pace as “solid” compared to “moderate” in previous statements. Officials removed a reference to inflation having moved up, though the statement still notes that “inflation remains somewhat elevated.”
“We saw data coming in which suggests some signs of stabilization, I wouldn’t go too far with that,” Fed chairman Jerome Powell said during a press conference following the announcement. Powell added that economic activity has “clearly improved” since late last year.
The Fed has cut rates by 175 basis points since October 2024. Several policymakers have argued those reductions have brought policy much closer to the so-called neutral level that neither stimulates nor restrains the economy, reducing the urgency for additional cuts.
Projections issued in December showed most officials expect at least one more cut this year. But recent comments from policymakers suggested no immediate urgency for further reductions, given concerns about inflation that has remained above the Fed’s two percent target for five years.
Data on consumer prices has offered some encouragement, with December figures showing underlying inflation softer than anticipated. But distortions from last year’s government shutdown won’t fully unwind until spring, meaning officials may view recent readings with limited confidence.
Waller has expressed concerns about labor market fragility throughout this cycle, while Miran—currently on leave from his position as a top White House economic adviser—has argued the Fed’s benchmark rate remains well above neutral and should be cut by 150 basis points this year.
The decision comes amid extraordinary political circumstances. The Justice Department earlier this month opened a criminal investigation into Powell, who called it an attempt at intimidation. Powell’s term as chair expires in May, and President Trump’s advisers have said he is close to naming a successor. Waller is among the top candidates for the position.
Last week, Powell attended a Supreme Court hearing over Trump’s attempt to fire Governor Lisa Cook, a move that took on heightened significance amid the DOJ probe.
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