The US Federal Reserve is keeping interest rates steady amid persistent inflation and a resilient labor market

The US Federal Reserve kept its benchmark interest rate unchanged on Wednesday as policymakers continued to assess the strength of the labor market and the pace at which inflation is declining. The central bank kept the federal funds rate within a range of 3.5% to 3.75%, in line with market expectations, signaling caution amid mixed economic signals and mounting political pressure.The decision comes at a time when inflation remains above the Fed’s long-term target, even as the U.S. economy continues to show resilience. Recent data show that the unemployment rate fell to 4.4% in December despite relatively weak job creation, underscoring the still tight labor market.

At the same time, economists expect the price index for personal consumption expenditures, excluding food and energy, to rise to about 3% annually, well above the Fed’s inflation target of 2%.

This meeting did not include updated quarterly projections on growth, inflation and interest rates. The Fed’s latest projections, released after its December meeting, showed an average expectation of just one rate cut in 2026, highlighting the wide divergence of views among policymakers on the future path of interest rates.

The policy decision also takes place against an unusually tense political backdrop. US President Donald Trump has repeatedly criticized the Fed for keeping borrowing costs high and has called for immediate and sharp interest rate cuts to stimulate economic growth. Trump has also publicly attacked Fed Chairman Jerome Powell, raising concerns in financial markets about possible pressure on the central bank’s independence.

These concerns have increased after reports that the US Justice Department had threatened Powell with possible criminal charges, a move that several Republican senators say undermines the central bank’s independence. Some lawmakers have indicated this could complicate the confirmation process for Powell’s successor.

Powell’s term as Fed chair ends in May, and Trump is expected to nominate a replacement soon, followed by confirmation hearings in the Senate. The sharp disagreements within the Fed itself show how difficult it may be for a new chairman to make more than modest rate cuts, regardless of political pressure.