The Federal Reserve held interest rates unchanged at about 3.6% on Wednesday, even as President Donald Trump continued to pressure the central bank to lower borrowing costs. Fed Chair Jerome Powell said the economy’s outlook “has clearly improved since the last meeting” in December, citing signs of a stabilizing job market and economic growth that should support hiring over time.
The decision sets up tension between the Fed’s cautious approach and Trump’s push for monetary stimulus. Powell and his colleagues will face sustained political pressure as they weigh whether to cut rates further while inflation remains above the central bank’s 2% target. According to the Fed’s preferred measure, inflation stood at 2.8% in November, slightly higher than a year ago.
Powell suggested the Fed would remain on hold for now. “The economy has once again surprised us with its strength,” he said. The economy’s solid 4.4% annual growth rate in the third quarter of 2025 and signs that the unemployment rate is leveling off suggest that interest rates are not so elevated as to noticeably slow growth, Powell indicated.
Two Federal Reserve officials dissented from the decision, signaling divisions within the committee. Stephen Miran and Christopher Waller voted for another quarter-point reduction. Miran, appointed by Trump in September, had previously dissented at three consecutive meetings in favor of a half-point cut. Waller is under consideration by the White House to replace Powell, whose term expires in May 2026.
Powell said the impact of tariffs — which have driven up prices on furniture, appliances, and toys — would peak in the middle of 2026 before inflation begins to decline. The Fed “generally sees the import taxes as a one-time price increase,” Powell explained, assuming no new major tariff increases occur.
Among the 19 members of the Federal Reserve’s rate-setting committee, just 12 support at least one more rate cut in 2026. Most economists forecast the Fed will cut twice this year, most likely at the June meeting or later.
Trump has relentlessly assailed Powell for not cutting rates more aggressively, and tension between the administration and the Fed has escalated beyond interest rates. Powell disclosed that the Federal Reserve had received subpoenas from the Justice Department as part of a criminal investigation into his congressional testimony regarding a $2.5 billion building renovation. In an unusually blunt statement, Powell called the subpoenas “a pretext to punish the Fed for not cutting rates more quickly.”
The administration has also sought to remove Lisa Cook, a Federal Reserve governor, over allegations of mortgage fraud that she denies. The Supreme Court is reviewing Trump’s effort to fire her — an action no president has attempted in the Fed’s 112-year history. Powell said the case is “perhaps the most important legal case” in the Fed’s history. At oral argument, the justices appeared inclined to allow Cook to remain in her position until the litigation concludes.
Trump has suggested he will soon announce a replacement Fed Chair. Republican senators, however, have signaled they would block Trump’s pick, offering Powell unexpected congressional support as he navigates unprecedented political pressure on the central bank’s independence.
“I’m strongly committed to” the Fed’s independence, Powell told reporters when asked if he was confident the institution could maintain it.
Powell told reporters he had not decided whether to continue serving as a Federal Reserve governor after his term as chair expires. When asked what advice he had for his successor, he offered a directive: “Don’t get involved in elected politics. Don’t do it.”
The broader economic backdrop complicates the Fed’s calculus. The Conference Board reported that consumer confidence fell to an 11-year low in January, suggesting widespread unease about the economic outlook. Yet consumers continue to spend at a healthy pace — a disconnect Powell acknowledged. “Consumer spending, although it’s uneven across income categories, the overall numbers are good,” he said.
Wall Street expected the Fed to maintain its pause on rate cuts through at least June, pending evidence that inflation is moving closer to the central bank’s 2% goal.