The United States (Federal Reserve (US Fed) has left its benchmark interest rate unchanged, saying inflation remains above its 2 percent target despite signs of easing across parts of the economy.
Jerome Powell, chairman of the Federal Reserve, announced the decision after the federal open market committee (FOMC) meeting on Wednesday, noting that policymakers remain focused on their dual mandate of maximum employment and price stability.
Powell said the US economy expanded at a solid pace in 2025 and is entering 2026 on “a firm footing,” although inflation remains “somewhat elevated” and job gains have remained low.
“In support of our goals, today, the federal open market committee decided to leave our policy rate unchanged,” the chairman said.
“The committee decided to maintain the target range for the federal funds rate at 3.5 percent to 3.75 percent.
“Since last September, we have lowered our policy rate 75 basis points, or three-quarters of a percentage point, bringing it within a range of plausible estimates of neutral.
“This normalisation of our policy stance should help stabilise the labour market while allowing inflation to resume its downward trend toward 2 percent once the effects of tariff increases have passed through.”
According to Powell, recent indicators show that economic activity continues to expand at a steady pace, with consumer spending remaining resilient and business investment growing.
However, he said activity in the housing sector has remained weak.
The Fed chair said the temporary shutdown of the government likely weighed on economic activity in the last quarter, though the impact is expected to reverse as government operations resume.
On the labour market, he said conditions appear to be stabilising after a period of gradual softening, while the unemployment rate stood at 4.4 percent in December and has “changed a little” in recent months.
“A good part of the slowing in the pace of job growth over the past year reflects a decline in the growth of the labour force due to lower immigration and labour force participation, though labour demand has clearly softened as well,” Powell said.
The chairman said inflation has eased significantly from its highs in mid-2022, but remains somewhat elevated relative to its 2 percent longer-run goal.
“Estimates based on the consumer price index indicate that total PCE prices rose 2.9 percent over the 12 months ending in December, and that excluding the food and energy categories, core PCE prices rose 3.0 percent,” he added.
Powell said the elevated readings are largely reflect inflation in the goods sector, which has been boosted by the effects of tariffs, while disinflation continues in the services sector.
Looking ahead, he said the fed is well positioned to determine the timing and extent of any additional policy adjustments based on incoming data, the evolving outlook, and the balance of risks.
Powell reaffirmed the Fed’s commitment to supporting maximum employment, bringing inflation sustainably down to 2 percent, and keeping long-term inflation expectations anchored.
