The US Federal Reserve’s Federal Open Market Committee ( FOMC ) kept the federal funds rate steady at 3.50-3.75% at the conclusion of its first meeting this year, aligning with widespread market expectations and pre-meeting analyst forecasts.

No rate cut materialized, marking a pause after three consecutive 25-basis-point reductions in the latter part of last year. This decision reflects a consensus that recent “insurance cuts” have provided sufficient support amid a still-robust economy.

"At today's meeting, the Committee decided to maintain the target range for the federal funds rate at 3-1/2 to 3-3/4 percent. In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. The Committee is strongly committed to supporting maximum employment and returning inflation to its 2 percent objective," Federal Reserve and FOMC chairman Jerome Powell said in a news briefing held early morning Hong Kong time..

Powell refused to respond to politcal questions and questions about the US dollar.

Unemployment stood at 4.4% in December, with job creation averaging around 50,000 monthly – a slowing trend but adequate given demographic trends and reduced migration.

Core PCE inflation hovered at 2.8% year-on-year in November, above the Fed’s 2% target but influenced by temporary factors, such as government shutdown distortions and partial tariff pass-through.

No urgency for easing

Analysts largely anticipated this outcome, with Michael Krautzberger, chief investment officer, public markets, at AllianzGI, offering one of the sharpest pre-meeting assessments, emphasizing both economic and institutional factors.

He said there was no urgency for easing after a cumulative 75 basis points of cuts in late 2025, with recent data – including stronger Q3 GDP and a declining unemployment rate – pointing to ongoing resilience.

Krautzberger highlighted broad support for the hold ( except from dovish Fed governor Stephen Miran ) and warned that political challenges to Fed independence could elevate term premia and longer-dated treasury yields through 2026. He favours an underweight on long-end US treasuries and a short bias on the dollar.

BNY's Americas macro strategist John Velis echoed the uneventful nature of the meeting, describing it as featuring “few fireworks” amid focus on Fed chairman Jerome Powell's succession. He projected no change in rates, with the Fed likely to dominate T-bill demand as funding details emerge.

Blerina Uruci, chief US economist at T. Rowe Price, called for a “dovish hold”, with communication signalling no rush to cut further and attentiveness to evolving conditions. She maintained a view of holds through the first half of 2026, with potential cuts in the second half, though risks like softening inflation could accelerate easing.

Politics in the spotlight

Christian Scherrmann, DWS chief US economist, stressed a “wait-and-see” stance, noting that inflation was closer to target than feared ( after adjusting for tariffs ) and likely to rebound temporarily in Q1 due to lingering shutdown effects. He viewed politics – including threats to Fed independence and Powell's successor announcement – as potentially dominating the narrative.

Rabobank's analysis diverged somewhat, expecting more aggressive cuts in 2026 ( three 25bp moves ) due to perceived political influence, though it agreed on a January hold and possible March cut if labour data weakens.

The hold underscores the Fed's data-dependent approach amid political turbulence, including attempts to challenge its autonomy. Markets now eye upcoming employment reports and potential leadership changes for clues on 2026 easing.

With inflation persistent and growth steady, the central bank appears prioritizing stability over immediate accommodation.