.png?locale=en)
Alsharq Tribune-M.Essam
The U.S. Federal Reserve on Wednesday held rates steady, marking a pause in the recent cutting cycle.
In line with expectations, the central bank's Federal Open Market Committee voted for key interest rates to remain in the range of 3.5 percent to 3.75 percent.
That put a stop to three straight quarters of rate cuts, which were an effort to cushion risks to the economy, including labor weakness, but inflation and broad uncertainty were also concerns.
"Available indicators suggest that economic activity has been expanding at a solid pace. Job gains have remained low, and the unemployment rate has shown some signs of stabilization," according to a statement released after Wednesday's meeting. "Inflation remains somewhat elevated."
The central bank gave limited guidance on future rate moves, saying decisions later this year will depend on incoming data, the evolving economic outlook and the balance of risks.
However, some economists expect additional rate cuts in 2026. When asked about the outlook, Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics, told Xinhua he expects three reductions this year as unemployment creeps up while inflation remains near 3 percent, with the first cut coming in March.
Others are more skeptical that rates will be lowered more than once this year.
Dean Baker, co-founder of the Center for Economic and Policy Research, told Xinhua that additional easing is unlikely under current conditions. "If there is not a collapse of the AI bubble, I doubt they will lower rates more than once," he said. "And if U.S. President Donald Trump imposes more large tariffs, likely not at all."
Baker said the labor market has softened but remains resilient, while inflation continues to run above the Federal Reserve's target. "The labor market has weakened, but it's not falling off a cliff, and inflation is still well above the Fed's target, so I don't see them feeling much need to cut rates," he said.
Federal Reserve Chair Jerome Powell, whose term runs through May 2026, has faced growing political pressure from Trump, who has repeatedly criticized the central bank and urged it to lower interest rates. Powell has also come under scrutiny from lawmakers over cost overruns in renovations at the Federal Reserve's Washington headquarters.
Speaking at Wednesday's press briefing, Powell struck a cautiously optimistic tone. "If you look at the incoming data since the last meeting, there is a clear improvement in the outlook for growth," he said.
"Inflation performed about as expected ... Some of the labor market data came in suggesting evidence of stabilization. So it's overall, a stronger forecast, really," he added.
The jobless rate dropped to 4.4 percent in December from the previous month's final reading of 4.5 percent, the Bureau of Labor Statistics reported.
Still, the labor market is in a period of slow hiring, although layoffs have been mild, with initial jobless claims at a two-year low.
Inflation, however, continues to sting Americans' wallets. While prices have been down since 2022, the rate is close to 3 percent, above the Fed's 2 percent target, reinforcing calls among some policymakers to pause further rate cuts until clearer evidence of sustained disinflation emerges.
"The expectation is that we will see the effects of tariffs flowing through goods prices peaking, then starting to come down, assuming there are no new major tariff increases that are begun, and that is what we expect to see over the course of this year," Powell said.
