Fed Holds Rates Steady as Economic Outlook Brightens Amid Independence Questions

The Federal Reserve decided on Wednesday to keep its key policy rate unchanged, ending a string of recent interest rate cuts as policymakers assess a stronger economic outlook. The Federal Open Market Committee voted to maintain the benchmark rate in a range of 3.5% to 3.75%, a move that aligned with market expectations and followed three consecutive quarter-point reductions.

In its post-meeting statement, the Fed upgraded its view on economic activity, noting that growth has been solid while signs of stress in the labor market have eased. Officials said job gains remain modest but unemployment appears to be stabilizing, while inflation, though lower than its peak, is still running above the central bank’s 2% target.

Notably, the statement removed earlier language suggesting that risks from a weakening labor market outweighed inflation concerns. This shift signals that policymakers now see the Fed’s dual mandate of price stability and maximum employment as more evenly balanced, supporting a pause in further easing for the time being.

Markets reacted calmly to the decision. Treasury yields edged higher, while U.S. equity benchmarks were little changed, reflecting expectations that the Fed is unlikely to move again before midyear unless incoming data shift materially.

The vote was not unanimous. Governors Stephen Miran and Christopher Waller dissented, both favoring another quarter-point rate cut. Their opposition contrasted with the majority view among the remaining policymakers, who supported holding rates steady amid improving growth indicators.

Fed Chair Jerome Powell said during a press conference that recent data pointed to a clearer improvement in the economic outlook. Growth has remained robust, with gross domestic product expanding at a strong pace in recent quarters, while inflation has evolved broadly as expected. Some labor market indicators, he added, suggest conditions are stabilizing rather than deteriorating.

The decision comes during a period of unusual pressure on the central bank. Powell is approaching the end of his term as chair, and the Fed has faced repeated political challenges, including public criticism and legal scrutiny tied to its operations. Questions over the institution’s independence have intensified, even as it navigates a complex economic environment marked by solid growth, sticky inflation and uncertainty around trade policy.

Looking ahead, the Fed offered little guidance on the timing of future moves, emphasizing that decisions will remain data-dependent. With inflation still elevated and growth holding up, policymakers appear content to wait, reassessing the path of interest rates as new economic information emerges in the months ahead.