The US Federal Reserve has decided to pause further interest rate cuts, signalling caution even as the American economy shows signs of improvement. At its January 2026 meeting, the central bank kept rates unchanged, highlighting stabilisation in the labour market and solid economic growth, while stressing that future decisions will depend strictly on incoming data.
Fed’s Key Decision
The rate decision was passed by a 10–2 vote. Two Governors Christopher Waller and Stephen Miran dissented, favouring a quarter-point rate cut. The decision itself was widely expected by markets, given recent signals from policymakers and improving economic indicators.
Improving US Economy
- In its post-meeting statement, the Fed upgraded its assessment of the US economy.
- Policymakers described economic growth as “solid”, an improvement from the earlier description of “moderate” growth.
- Importantly, the Fed noted that job gains have remained low but stable, and the unemployment rate is showing signs of stabilization.
- Officials also removed earlier language about rising downside risks to employment, suggesting reduced near-term concern about labor market weakness.
What Jerome Powell Said After the Meeting
- Fed Chair Jerome Powell reinforced this cautiously optimistic tone.
- He stated that the outlook for economic activity has clearly improved compared to the previous meeting and that this should support labor demand over time.
- However, Powell also warned against excessive optimism, noting signs of continued cooling in the labor market.
- He emphasised that the Fed is not committing to a timeline for future cuts and will decide meeting by meeting based on evolving data.
Inflation Outlook: Still Above Target
- On inflation, Powell described the overall picture as “modestly positive”.
- However, he acknowledged that the Fed’s preferred measure of core inflation is likely to end 2025 at around 3%, still one percentage point above the Fed’s 2% target.
- He attributed much of the overshoot to goods prices influenced by tariffs, suggesting these pressures are likely to be one-time price increases rather than persistent inflation.
Why Fed Decisions Matter Globally?
- The US Federal Reserve plays a central role in the global financial system.
- Its interest rate decisions influence capital flows, currency movements, global bond yields, and emerging market stability.
- A cautious Fed stance often provides relief to global markets, including India, by reducing volatility and external financial pressure.
Key Summary at a Glance
| Aspect | Details |
| Why in News? | Fed held interest rates unchanged |
| Rate Range | 3.5%–3.75% |
| Economic View | Growth described as “solid” |
| Labour Market | Showing signs of stabilization |
| Inflation Outlook | Core inflation 3% |
| Next Cut Expectation | Possibly after June 2026 |
Question
Q. The US Federal Reserve currently maintains the federal funds rate in which range?
A. 2.5%–3.0%
B. 3.0%–3.25%
C. 3.5%–3.75%
D. 4.0%–4.25%
ShivamAs a Content Executive Writer at Adda247, I am dedicated to helping students stay ahead in their competitive exam preparation by providing clear, engaging, and insightful coverage of both major and minor current affairs. With a keen focus on trends and developments that can be crucial for exams, researches and presents daily news in a way that equips aspirants with the knowledge and confidence they need to excel. Through well-crafted content, Its my duty to ensures that learners remain informed, prepared, and ready to tackle any current affairs-related questions in their exams.