Federal Reserve signals no rush to cut interest rates as US economy powers ahead

The Federal Reserve has kept interest rates on hold for the first time since July, as chair Jerome Powell said the US central bank was in no rush to cut them despite Donald Trump’s relentless campaign to drastically lower borrowing costs.

The Fed on Wednesday left its main interest rate at a range of 3.5 to 3.75 per cent, following three straight quarter-point reductions. The decision matched Wall Street’s expectations.

Mr Powell said after the meeting that with the economy growing at a robust rate, and the jobs market steadying in recent months, rates did not appear to be in “significantly restrictive” territory.

“The economy has once again surprised us with its strength, not for the first time,” said Powell. He said that inflation had performed “about as expected” and labour market data suggested “evidence of stabilisation”.

Official statistics released last week showed annualised GDP growth of 4.4 per cent in the third quarter of 2025. The Atlanta Fed has said that could jump as high as 5.4 per cent in the fourth quarter.

Mr Powell’s comments represent one of the clearest signs yet that policymakers plan to keep rates on hold in the coming months despite Trump insisting that they should lower borrowing costs to juice growth. The president has called Powell a “moron” for not reducing rates.

“If people were looking for a sign this is a short-term pause, it’s not — and that’s what I think the key takeaway was,” said Brett Ryan, senior US economist at Deutsche Bank. “This isn’t a change to a slower pace of cuts. They’re not going to move for a while unless something forces them to do so.”

Wall Street’s reaction to the Fed decision was modest, with investors continuing to expect the next cut this summer at the earliest, according to trading in fed funds futures.

The US dollar index, which measures the currency against a basket of six rivals, inched up to session highs and was up 0.4 per cent on the day.

The two-year Treasury yield, which moves with rate expectations, rose to session highs after Powell began speaking but remained well within recent ranges. The S&P 500 was roughly flat.

Mr Powell said there was “broad” support on the central bank’s policy-setting board for holding rates steady.

However, governor Christopher Waller, one of four candidates left in the race to replace Powell as chair when his term ends in May, dissented, calling for a quarter-point cut. Stephen Miran, a staunch Trump ally who was appointed a governor last year, also called for a quarter-point cut.

The objections came as central bankers attempt to balance their dual mandate of price stability and full employment. The Fed’s preferred personal consumption expenditures inflation gauge registered 2.8 per cent in November, well above its 2 per cent target.

At the same time, the labour market has shown some signs of weakness, with the world’s biggest economy adding just 50,000 jobs last month, and long-term unemployment sitting at a four-year high.

Mr Powell on Wednesday also emphasised the importance of the Fed’s independence, after revealing earlier this month that the Department of Justice had opened a probe into his handling of a $2.5bn renovation of the central bank’s headquarters.

He declined to comment on the investigation but defended the importance of central bank independence.

“It’d be hard to restore the credibility of the institution if people lose their faith that you’re making decisions only on the basis of our assessment of what’s best for everyone.”

Mr Powell also defended his decision to attend a Supreme Court hearing over Trump’s attempt to sack governor Lisa Cook.

“I would say that case is perhaps the most important legal case in the Fed’s 113-year history.” – Copyright The Financial Times Limited 2026