Fed Holds Rates at 3.5%–3.75%, Powell Says Economy on Firm Footing but Inflation Remains Elevated
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Summary
The Federal Open Market Committee held the federal funds target range at 3.5%–3.75%. Chair Powell said the economy started 2026 on a solid footing, noted labor-market signs of stabilization, and attributed much of the recent goods-price overshoot to tariffs.
The Federal Open Market Committee decided to leave its policy rate unchanged, keeping the federal funds target range at 3 and a half to 3 and 3 quarters percent, Chair Powell said at the press conference.
Powell described the U.S. economy as entering 2026 on a "firm footing," citing resilient consumer spending and continued business investment while noting the housing sector remained weak. He said recent data suggest the labor market "may be stabilizing" after a period of gradual softening and reported the unemployment rate was 4.4% in December with total nonfarm payrolls declining at an average pace of 22,000 per month over the last three months.
On inflation, Powell said readings have "eased significantly from their highs in mid 2022" but remain above the Fed's 2% longer‑run goal. He cited core PCE inflation at 3% over the 12 months ending in December and said "these elevated readings largely reflect inflation in the goods sector, which has been boosted by the effects of tariffs." He characterized tariff effects as likely to be a largely one‑time price increase that should move through goods prices over the course of the year.
Explaining the Committee's decision, Powell noted that since last September the Fed had cut its policy rate by 75 basis points over three meetings and that the current stance sits "within a range of plausible estimates of neutral." He emphasized that monetary policy is not on a preset course and that the Committee will "determine the extent and timing of additional adjustments" based on incoming data, the evolving outlook and the balance of risks.
Powell also highlighted that near‑term measures of inflation expectations have declined from last year’s peaks and that most longer‑term measures are consistent with the 2% goal. He closed by reiterating the Fed's commitment to promoting maximum employment and stable prices and to making meeting‑by‑meeting policy judgments.
The press conference moved to extended questioning on the labor market, tariffs, and the timing of any future rate moves; Powell repeatedly declined to commit to a timetable and said the Committee would act based on how incoming data alter the balance of risks.
