The Federal Reserve on Wednesday kept interest rates unchanged between 3.5% and 3.75%, ending a series of three consecutive quarter-point cuts. The move reflects a cautious approach to balancing elevated inflation with sluggish hiring, consistent with guidance from Chair Jerome Powell prior to recent reports of a federal investigation into his conduct.
Powell described the economy as expanding at a “solid pace,” noting that while job gains remain subdued, the unemployment rate fell to 4.4% in December from 4.6% in November. He said the current monetary stance remains appropriate for advancing both maximum employment and the Fed’s 2% inflation target. Futures markets, however, price in two potential rate cuts this year, likely in June and the fall.
Investigation and Market Implications
Earlier this month, news emerged of a criminal investigation into Powell concerning his congressional testimony on cost overruns from a multi-billion-dollar office renovation project. Powell has described the probe as politically motivated, while President Trump, who has publicly criticized the Fed, denied any involvement.
Analysts have warned that such scrutiny could threaten the Fed’s independence, potentially pressuring policymakers to favor lower rates to stimulate short-term growth. Powell, however, reaffirmed the central bank’s autonomy, stating, “We haven’t lost it [and] I don’t believe we will. I’m strongly committed to that and so are my colleagues.”
Policy Challenges Ahead
The Fed faces a delicate trade-off between curbing inflation and supporting employment. Raising rates further could deepen the labor slowdown, while lowering rates risks accelerating inflation. Powell described this balance as a “challenging situation” with no risk-free policy path.
His term as chair expires in May, though he can remain on the Fed’s policymaking board until 2028. On Wednesday, he declined to comment on his future plans, emphasizing the Fed’s commitment to maintaining political independence while navigating ongoing economic pressures.
