Fed Keeps Key Interest Rate Steady As Inflation, Job Market Worries Persist

Borrowing costs are set to hold steady for the time being, as the Federal Reserve has returned to a wait-and-see mode to determine whether inflation or unemployment poses the greater threat to the economy.

The Fed's policy committee voted to keep its key interest rate flat Wednesday at a range of 3.5% to 3.75%, keeping borrowing costs stable. The committee cut the rate by a quarter-point at each of its last three meetings. The Federal Open Market Committee voted 10-2 to stand pat, with Fed Governors Stephen Miran and Christopher Waller dissenting in favor of another rate cut.

Fed officials have debated cutting rates to boost the job market after a sharp slowdown in hiring in recent months, and the need to keep rates higher for longer to push down inflation that's run above the Fed's 2% annual target for more than four years.

"In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the committee said, repeating language from its most recent statement in December.

The Fed funds rate influences borrowing costs across all kinds of loans and is the Fed's main tool for fulfilling its dual mandate to keep inflation in check and maximize employment.

The committee largely repeated the language of its last statement in December, but added that "job gains have remained low, and the unemployment rate has shown some signs of stabilization," and that "inflation remains somewhat elevated."

Fed's Independence Is Tested

The Fed's decision to hold rates diverged from President Donald Trump's repeated calls for sharp rate cuts. The administration has publicly criticized the central bank, and in recent months, has pursued legal actions against Fed officials, including threats of criminal prosecution against Fed chair Jerome Powell and an attempt to fire Fed governor Lisa Cook, an issue now pending a Supreme Court ruling.

Trump has said lower borrowing costs would help the economy and household finances by reducing the cost of loans like mortgages, and has denied knowing in advance that the Justice Department was taking action against Powell. Fed officials, including Powell, have accused the administration of intimidation and of attempting to undermine the Fed's independence, which was established by Congress to be outside the White House's control.

Economists say the Fed's traditional distance from politics has made it more effective in managing monetary policy. In countries with less independent central banks, heads of state tend to force interest rates down, which can boost the economy in the short run but often leads to runaway inflation.

Related Education

Federal Funds Rate: What It Is, How It's Determined, and Why It's Important

Federal Open Market Committee (FOMC): What It Is and Does

Economy Isn't Making Decisions Easy

The Fed faces a dilemma with economic data pulling it in opposite directions. Inflation had been cooling down since spiking immediately after the pandemic, but stopped making downward progress in 2025 as tariffs pushed up prices for many consumer goods. That would normally lead the Fed to keep rates higher to push it down.

However, job creation has ground nearly to a halt and the unemployment rate has edged up in recent months as Trump's unpredictable trade policies have stoked uncertainty among business leaders, leading many to put hiring and expansion plans on hold. The Fed could address that problem with easier money policies by lowering rates.

Further complicating matters, the government shutdown in October and November delayed and distorted key data bout employment and inflation, and another shutdown is on the horizon as lawmakers debate immigration enforcement funding.

Financial markets expect the Fed to stay on hold at least until June, which will be the first meeting after Powell's term ends in May.