At its January meeting, the Federal Reserve kept the Fed Funds Target Range (FFTR) unchanged at 3.50%–3.75%, a decision that was fully in line with market expectations.

FOMC statement highlights

The Committee acknowledged that inflation remains somewhat elevated, while noting that it no longer judges downside risks to employment as rising. The unemployment rate has shown signs of stabilisation, although job gains remain low, and uncertainty around the economic outlook remains elevated.

The Fed upgraded its assessment of economic activity, saying growth has been expanding at a “solid” pace, while reiterating that it remains attentive to risks on both sides of its dual mandate. The statement also reaffirmed the longer-run goals and monetary policy strategy.

The decision passed by a 10–2 vote, with Governors Miran and Waller dissenting in favour of a 25 basis points rate cut.

Powell press conference

Chair Powell said the US economy is on firm footing and that the current stance of policy is appropriate, continuing to promote progress towards both employment and inflation objectives. He noted that housing activity remains weak, while government shutdown effects should be reversed this quarter.

Powell suggested the labour market may be stabilising, though job growth has slowed, reflecting both a decline in labour force growth and softening labour demand. Measures such as Conference Board job availability point to some cooling, and Powell acknowledged that the labour market has softened, even as the economy has again surprised with its strength.

On inflation, Powell reiterated that it remains somewhat elevated relative to the Fed’s goal, with core PCE inflation in December estimated at around 3%. He stressed that most of the inflation overshoot has come from goods prices linked to tariffs, rather than demand, and described core PCE excluding tariff effects as running just above 2%, calling this a healthy development. Disinflation in services is continuing, while tariff-related goods inflation is expected to peak around the middle of the year and then ease, with much of the overshoot seen as one-time.

On policy, Powell said the policy rate is within the range of plausible estimates of neutral, likely towards the higher end, and argued it is hard to characterise policy as significantly restrictive based on incoming data. He stressed that policy is not on a preset course, with decisions taken meeting by meeting, and that the Committee is well positioned to determine the extent and timing of further adjustments.

Powell said no one’s base case is a rate hike, adding that a weakening labour market would argue for cuts, while continued labour strength would not. He noted that risks to both sides of the mandate have diminished somewhat, though it is hard to say they are fully in balance.

Finally, Powell said short-term inflation expectations have fully retraced, which he described as “very comforting”, while longer-term expectations continue to reflect confidence in a return to 2% inflation, reiterating that the Fed will always act if the economy moves away from its goals.

Overall, Powell’s tone was broadly neutral, leaning mildly dovish, as he downplayed restrictiveness, highlighted improving inflation dynamics, and kept the door open to future cuts without committing to them.