US Federal Reserve Chairman Jerome Powell gestures during a press conference following a two-day Federal Open Market Committee (FOMC) meeting on interest rate policy, in Washington, DC, US, January 28, 2026. | Photo credit: REUTERS/Jonathan Ernst
After the Fed kept borrowing costs on hold on Wednesday, Powell spoke of a “marked improvement” in the US outlook and said the labor market is showing signs of stabilizing. It signals cautious optimism: Fed officials made three cuts last fall and see nothing in the latest data to suggest more are needed to support the economy. Futures markets do not expect any interest rate change before June.
By then, Powell’s term as chairman will be over and a new one should be in place. This will likely mark a new phase of President Donald Trump’s campaign for lower interest rates, which has upended the Fed over the past year. In a possible sign of things to come, the only two officials to vote for another cut this week were Governor Stephen Miran – on leave from the Fed from his role as Trump’s top aide – and Governor Christopher Waller, one of four names on Trump’s short list of potential Powell successors.
“The window for a cut under a Powell-led Fed is essentially closed,” said Stephanie Roth, chief economist at Wolfe Research. “He is more optimistic about the labor market and the economy in general than he was.”
The Federal Open Market Committee voted 10-2 on Wednesday to keep the fed funds rate within a range of 3.5%-3.75%. Waller and Miran disagreed in favor of a quarter-point cut. Officials omitted language pointing to the increased downside risks to employment highlighted in the three previous statements.
Figures released since the Fed’s December meeting point to accelerating growth, cooling inflation and stabilizing employment.
“The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter for labor demand and for employment over time,” Powell told reporters on Wednesday.
This improved assessment of the labor market is likely to keep expectations for a near-term rate cut at bay, despite escalating pressure from the Trump administration. Still, Powell took pains not to exaggerate the improvement in the labor market. While the situation shows signs of stabilization, “I wouldn’t want to go too far into that,” he said.
Fed watchers said the mixed messages indicate policymakers want to keep their options open.
“The different descriptions can give you whiplash,” said Tim Mahedy, a former senior adviser at the Federal Reserve Bank of San Francisco.
The financial markets did not show a strong reaction. Bond yields were largely unchanged, with the 10-year yield holding steady at around 4.25%. The dollar fell sharply from the day’s high, which came after Treasury Secretary Scott Bessent touted strong dollar policy. The S&P 500 also changed little that day.
The Fed chief hesitated when asked what it would take for another rate move. “We’re not trying to formulate a test for when the next cut should happen, or whether cuts should be made at the next meeting,” he said.
On inflation, Powell said the overall story was “modestly positive,” despite his assessment that the Fed’s preferred gauge ended 2025 at 3%, a full percentage point above target.
“Most of the excess was in commodity prices, which we believe is related to tariffs,” he said. “We believe these will not lead to inflation, unlike a one-off price increase.”
Political background
Powell avoided answering most questions about the extraordinary political backdrop overshadowing the central bank — including the Justice Department’s criminal investigation into the central bank.
The DOJ issued subpoenas to the Fed earlier this month, prompting an unusually strong response from Powell. He accused the government of trying to seize control of interest rates through intimidation.
Without directly commenting on pressure from the Trump administration, Powell on Wednesday reiterated his defense of central bank independence — calling it “an institutional arrangement that has served the people well.”
Asked whether he has made a decision on whether to remain on the Fed board after his term as chairman ends in May, Powell said no and declined to say when he would make a decision.
Powell did comment on his decision to attend a Supreme Court hearing last week on Trump’s attempt to fire Fed Governor Lisa Cook. “This case may be the most important lawsuit in the Fed’s 113-year history,” he said. “I thought it might be hard to explain why I wasn’t there.”
More stories like this are available at bloomberg.com
Published on January 29, 2026
#Powell #hints #rate #cuts #Fed #sees #stronger #U.S #economy