WASHINGTON, D.C. – At its first meeting of 2026, the Federal Reserve (Fed) chose to keep its key interest rate unchanged. The benchmark federal funds rate stays in a target range of 3.5% to 3.75%. The decision, released January 28, 2026, follows three quarter-point cuts made in late 2025.
The Fed said the US economy is still growing at a steady clip. Inflation is still a bit higher than the Fed wants, but risks to jobs and inflation now look more balanced.
Fed Chair Jerome Powell said the economy has “surprised us with its strength.” He also said the current level of rates fits the Fed’s two goals, strong employment and stable prices. Powell added that officials will keep watching new economic data before making more moves.
Markets took the news in stride. Big stock indexes barely moved, since most investors expected the Fed to stay put.
Two Fed Policymakers Vote for a Cut
The Federal Open Market Committee approved the hold with a 10-2 vote. Two governors, Stephen I. Miran and Christopher J. Waller, dissented and backed a 25-basis-point cut.
Miran, whom President Donald Trump appointed in late 2025, has pushed for faster easing and has dissented more than once in recent meetings. Waller broke with the majority for the first time in this stretch, siding with the view that lower borrowing costs could help keep growth on track as the labor market cools.
The split shows an ongoing debate inside the Fed. Most officials see rates as close to neutral, meaning they are not strongly slowing the economy or boosting it. The dissenters said a small cut could act as insurance against a slowdown without sending inflation back up.
Some economists and market watchers think the Fed’s pause has a political angle, even if it’s not stated. The Trump administration has pushed hard for deeper rate cuts. Trump has argued that lower rates would reduce government borrowing costs, support economic growth, and help consumers with cheaper mortgages and loans.
To some observers, the timing matters. Holding rates steady can also signal that the Fed won’t be seen as responding to White House pressure. Powell’s term as chair is close to ending, which adds to the scrutiny. The Fed’s statement and Powell’s remarks stayed focused on the data, but the optics of a pause are hard to ignore.
Trump and Powell Keep Clashing
The relationship between Trump and Powell has grown tense. Trump has criticized Powell in public and called for much lower interest rates, even floating rates near 1% in past comments. He has also signaled that his pick for the next Fed chair will favor aggressive easing.
Powell avoided political back-and-forth at the press conference. He also offered simple advice for whoever comes next: stay out of elected politics, while accepting congressional oversight as part of a democratic system. The standoff has turned into a larger argument about how independent the central bank should be during a deeply divided period.
The situation escalated in early January 2026, when Powell said he and the Federal Reserve were part of a criminal investigation by the Department of Justice. The investigation relates to his June 2025 testimony to Congress about a $2.5 billion renovation of the Fed’s headquarters, including cost overruns.
Powell addressed the issue in a rare public video message. He called the subpoenas “pretexts” meant to pressure the central bank into matching the administration’s push for lower rates. He warned that the investigation could weaken the Fed’s ability to set monetary policy based on economic facts, not politics.
Powell’s Fed Chair Term Ends in May 2026
The investigation has drawn strong criticism from lawmakers, economists, and legal experts, who describe it as an unusual threat to the Fed’s independence. As of late January, the Fed had not fully complied with related grand jury subpoenas, and the case remains active.
Powell’s four-year term as Fed chair ends in May 2026. His separate term as a Fed governor runs through January 2028. He hasn’t said whether he plans to stay on the Board after stepping down as chair, which has fueled more talk about what comes next.
Trump is expected to name a new chair soon, and the list of possible picks includes candidates seen as more willing to cut rates. That handoff could shape the Fed’s direction for years, especially if the next chair lines up more closely with the White House.
For now, the Fed’s latest decision shows how hard the job has become. Officials are trying to manage a strong but uncertain economy, while also dealing with rising political pressure. Investors are still watching for possible rate cuts later in 2026, with some market pricing pointing to two quarter-point cuts. The mix of economics, interest rates, and politics is likely to stay front and center.
