US Fed Meeting Highlights: US Fed holds interest rates steady; Powell says policy can ease once tariff pressures recede

Asked about the impact of artificial intelligence on the labour market, Fed Chair Powell said AI could displace some jobs in the short term but is ultimately likely to lift productivity and support higher wages over time. However, he cautioned that its macroeconomic effects are still difficult to assess.

US Fed Chair Jerome Powell said tariff-related inflation is expected to top out around the middle of the year, reiterating that the rise in prices from higher tariffs should be a one-time effect rather than a persistent source of inflation. He added that the recent inflation overshoot reflects higher goods prices linked to tariffs, and that this is not expected to keep inflation elevated over the long run.

Jerome Powell said the tension between the Fed’s inflation and employment goals has eased, with upside risks to inflation and downside risks to employment both diminishing. He added that inflation expectations have come down somewhat and that current policy may be loosely neutral or somewhat restrictive, rather than significantly tight.

Fed Chair Jerome Powell said the central bank could begin loosening monetary policy once inflation shows clearer signs of easing, particularly as tariff-related price pressures peak and start to recede this year, assuming no fresh major tariff hikes.

Jerome Powell said the US federal budget deficit is on an “unsustainable path” even though the overall debt level remains manageable, adding that running large deficits at near-full employment is a concern that will eventually need to be addressed.

US Fed Chair Jerome Powell said the inflation overrun linked to the Trump administration’s sweeping tariffs is expected to be a one-time effect, with goods prices likely to peak and then ease later this year.

Jerome Powell also refused to say whether he would remain at the US Fed after his term as chair expires in May, noting that his current term as a Fed governor runs through January 2028.

Fed Chair Jerome Powell declined to comment on questions related to grand jury subpoenas from the US Justice Department over the central bank’s headquarters renovation, saying he had “nothing” to add beyond his earlier statement this month.

Jerome Powell said core inflation, as measured by the personal consumption expenditures index, was probably around 3 percent in December, still above the US Fed's 2 percent target.

While reiterating that inflation remains "somewhat elevated", Jerome Powell said the US Fed is seeing disinflation in the services sector, offering a partial offset to broader price pressures.

Jerome Powell stressed that monetary policy is not on a pre-set path, saying the US Fed will decide the extent and timing of any further rate adjustments meeting by meeting, based on incoming data, the evolving outlook and the balance of risks.

US Fed chair Jerome Powell said indicators such as job openings, layoffs, hiring and nominal wage growth have shown little change in recent months, reinforcing the view that labour market conditions are stabilising rather than deteriorating.

Jerome Powell said part of the slowdown in job growth over the past year reflects weaker labour force growth due to lower immigration and labour force participation, alongside some softening in labour demand.

While broader growth remains resilient, Jerome Powell flagged continued weakness in the housing sector, even as inflation remains somewhat elevated.

Jerome Powell said the US economy expanded at a solid pace last year and is entering 2026 on a firm footing, with the labour market showing signs of stabilisation after a period of softness.

Jerome Powell said policymakers believe the existing policy setting is sufficient to support progress toward the Fed’s dual mandate of maximum employment and 2 percent inflation.

US Federal Reserve Chair Jerome Powell said the current stance of monetary policy is appropriate after cumulative rate cuts of 75 basis points over the Fed’s previous three meetings.

While noting that job gains have "remained low", the US Fed said the unemployment rate has shown signs of stabilisation. The jobless rate fell to 4.4 percent in December.

The US Fed removed language that had earlier flagged rising downside risks to employment, suggesting policymakers are now less concerned about a sharp deterioration in the labour market.

Policymakers said economic activity continues to expand at a "solid pace", reinforcing the case for holding rates steady despite political pressure for faster easing.

The Federal Reserve’s policy statement offered no indication on when borrowing costs might fall again. The “extent and timing of additional adjustments” would depend on incoming data and the economic outlook, it said.

The US Federal Reserve said uncertainty around the economic outlook remains elevated. The central bank reiterated that it remains attentive to risks on both sides of its dual mandate of maximum employment and price stability.

In its policy statement, the Fed said economic activity has been “expanding at a solid pace,” while job gains have remained low and the unemployment rate has shown signs of stabilisation. However, it noted that inflation “remains somewhat elevated.”

The rate decision was not unanimous. Fed governors Stephen Miran and Christopher Waller dissented, voting for a 25-basis-point rate cut, marking a split within the Federal Open Market Committee on the near-term policy path.

This is the first time since July that the US Federal Reserve has refrained from lowering interest rates at the conclusion of its two-day policy meeting, following three quarter-point cuts late last year.

The US Federal Reserve on Wednesday held its benchmark interest rate steady in the 3.5 percent-3.75 percent range at its first policy meeting of the year, a decision that was widely expected by markets.

In its policy statement, the US Federal Reserve said inflation “remains somewhat elevated,” signalling that policymakers are not yet convinced price pressures are fully under control despite last year’s rate cuts.

The US Federal Reserve on Wednesday left its benchmark interest rate unchanged, in line with market expectations, opting to remain in wait-and-watch mode as it assesses progress on inflation and the broader economy.

Generally, short-term rates, like credit cards, are closely pegged to the fed’s benchmark. Longer-term rates, like mortgages, are more influenced by inflation and other economic factors. While the central bank has no direct influence on deposit rates, those yields tend to be correlated to changes in the target federal funds rate — so holding that rate unchanged will keep savings rates above the rate of inflation, which is a rare win.

Although the US Federal Reserve cut its key interest rate by 25 basis points on 10 December 2025, for the third time in 2025, the 3.50% to 3.75% interest rate came on the backdrop of elevated inflation in the US economy and slowing job growth in the country.

Jerome Powell's Federal Reserve faces mounting political pressure as it prepares for today's policy decision, though economists expect no change to the current 3.5%-3.75% benchmark rate. Traders see only a slim 3% probability of any reduction.

Any change to the key interest rates impacts short-term interest rates across various financial assets. These changes influence the spending choices of households and businesses, thereby affecting overall economic activity, employment levels, and inflation rates.

The US Federal Reserve cut interest rates by 25 basis points in December, but the decision highlighted sharp divisions among policymakers and signalled a cautious outlook for further easing. The benchmark policy rate was lowered to a range of 3.50% to 3.75%, even as the central bank indicated that borrowing costs are unlikely to fall again in the near term.

The dollar enjoyed a respite Wednesday after this week's steep drop as traders awaited the US Federal Reserve's take on interest rates, while gold reached another record high thanks to investors seeking safety amid an uncertain economic outlook.

The euro fell against the dollar on Wednesday as traders awaited the US Federal Reserve's latest interest rate decision, AFP reported.

Wall Street traders left stocks and bonds wavering before the Federal Reserve decision, with investors also looking to the megacap earnings season for clues on the artificial-intelligence trade. The dollar rose after Treasury Secretary Scott Bessent touted a strong currency.

Following a tech-led rally that drove the S&P 500 briefly above 7,000, equity gains faded. ASML Holding NV erased a surge that drove Europe’s most-valuable company to a record. Its solid results had earlier bolstered investor optimism about AI. Investors will get more clues on that front when Microsoft Corp. and Meta Platforms Inc. report later Wednesday.

The Federal Reserve is widely expected to halt its interest-rate-cutting cycle this week, as a steadier jobs market restores a degree of consensus at the central bank after months of growing division.

Several officials, including some close to the chair, have been signaling that rates are now in the right place — at 3.5%-3.75% following three consecutive cuts — to shore up employment and still keep downward pressure on inflation.

“They are now essentially within the strike zone of neutral estimates,” said Josh Hirt, senior US economist at The Vanguard Group Inc., referring to the level where rates will neither restrain nor stimulate the economy. “That brings about more caution, less urgency” for more cuts, he said.