The US Federal Reserve will keep interest rates unchanged in its first interest rate decision in 2026.
The Federal Reserve announced on Wednesday that interest rates would be kept between 3.5% and 3.75%, defying US President Donald Trump’s calls for more aggressive rate cuts.
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“The Committee aims to achieve maximum employment and 2% inflation in the long term. Uncertainty about the economic outlook remains high,” the central bank said in a release announcing the decision.
Wednesday’s decision was widely expected. CME FedWatch, a tool that tracks monetary policy expectations, predicts a more than 97% chance that the central bank will leave interest rates unchanged.
The tracker also expects two rate cuts in 2026, with the first most likely as early as June.
“Available indicators suggest that economic activity is expanding at a solid pace. Employment growth remains low and the unemployment rate shows signs of stabilization,” the central bank said.
The decision comes amid signs of stabilization in the U.S. labor market. The U.S. economy added 584,000 jobs in 2025, marking the lowest annual job growth rate since 2003. Employment increased by 64,000 in October and 50,000 in December. Although job growth remains weak, December’s numbers represent a modest rebound from October, when the economy lost 105,000 jobs, according to the Bureau of Labor Statistics.
There are signs that the labor market may cool further in the coming months. This week, Amazon and UPS both announced tens of thousands of job cuts, some of which were due to a push to expand the use of artificial intelligence in the workplace.
Another threat to the U.S. economy and job market comes in the form of an impending government shutdown. That could happen as early as Saturday, and depending on how long it lasts, spending could slow as federal workers are temporarily unpaid.
political tension
The decision to keep interest rates unchanged comes despite President Trump increasing pressure on the central bank to lower interest rates. Fed Chairman Jerome Powell has long emphasized the central bank’s independence, and Wednesday’s decision is the first since Powell rebuked the Justice Department’s criminal investigation. The central bank chairman, whose term ends in May, said the investigation was a “pretext” to apply pressure.
“The threat of criminal charges is the result of the Federal Reserve setting interest rates based on its best assessment of what will serve the public, rather than following the wishes of the president,” Powell said in early January in response to a subpoena.
The Supreme Court last week heard arguments in a case examining whether President Trump had the legal authority to fire Federal Reserve Board Director Lisa Cook amid allegations of mortgage fraud.
Meanwhile, Fed Director Stephen Millan’s term ends this week. President Trump nominated Milan to temporarily fill the seat vacated by Adrianna Coogler in August while seeking a more permanent replacement.
Milan was one of two central bank governors to vote in favor of lowering interest rates, along with Christopher Waller.
The development comes as President Trump searches for a new Fed chairman. He specifically called for further interest rate cuts and for a chairman with the same views as him.
“Anyone who disagrees with me will never be Fed Chairman!” Trump said in a December post on Truth Social.
Central banks around the world are also paying attention to political pressure.
“The Federal Reserve is the largest and most important central bank in the world, and we all need it to do well. Any loss of Fed independence would affect all of us,” Bank of Canada Governor Tiff Macklem said Wednesday. The Bank of Canada kept interest rates unchanged ahead of the U.S. central bank’s decision.
Macklem was among the central bank governors who issued a joint statement supporting Powell earlier this month. Macklem said last September that President Trump’s attempts to put pressure on the Fed were starting to hurt markets.
The Dow Jones Industrial Average was flat, as was the Nasdaq, and the S&P 500 index was down 0.1 in midday trading.
