The Federal Reserve is expected to keep interest rates on hold on Wednesday, a hiatus that investors believe will extend beyond central bank chief Jerome Powell’s last meetings in March and April, although his successor is expected to be sworn in by the summer and policymakers are divided over whether further cuts in borrowing costs are warranted.
The latest data shows the U.S. unemployment rate fell to 4.4% in December despite weak job growth, and economists expect the personal consumption expenditure price index, which excludes food and energy costs, to rise to 3% from a year earlier in the month, well above the Fed’s 2% target.
With consumer spending remaining strong and fiscal policy likely to boost growth in the first few months of the year, “clearly given the strength of the U.S. economy, there is no urgency to cut interest rates aggressively,” Seema Shah, chief global strategist at Principal Asset Management, said in an analysis of the next Fed meeting.
The Fed will announce its policy decisions at 2:00 pm ET (7:00 pm Japan time), and Chairman Powell is scheduled to begin a press conference 30 minutes later to provide details on interest rate decisions and the economic outlook.
This week’s meeting did not include an update on policymakers’ quarterly forecasts for the economy and monetary policy, but forecasts released after the Dec. 9-10 meeting showed the median expectation for rate cuts in 2026 to be just one quarter-point, with officials largely divided.
At last month’s meeting, seven of the Fed’s 19 policymakers said they don’t think another rate cut is warranted for at least a year, four said only one additional rate cut would likely be needed, and eight said interest rates should be cut by at least 0.5 percentage point in 2026.
White House pushes for interest rate cuts
President Donald Trump has called for immediate and deep cuts in Fed interest rates, but the widespread opinion among officials illustrates the hurdles Mr. Powell’s successor will face in crafting anything other than modest cuts.
President Trump is expected to name a successor shortly after Powell’s term as Fed chair ends in May, followed by confirmation hearings in the U.S. Senate. The process has been complicated by heightened tensions between Mr. Powell and the Trump administration after revelations that the Justice Department had threatened criminal charges against the Fed chief, which several Republican senators have argued are grounds for holding off on confirming his replacement given the implied threat to the central bank’s independence.
Meanwhile, the economy continues to show resilience despite concerns late last year about a weakening labor market. As a result, JPMorgan Chief Economist Michael Feroli said last week that both the new policy statement and Chairman Powell’s remarks at the press conference were unlikely to commit to the timing or extent of further rate cuts.
The Fed’s policy committee was divided in December when it approved a third straight quarterly interest rate cut, with only a few members passively supporting the cut.
Feroli wrote that any changes to the statement would likely reflect stronger-than-expected data since then. Mr. Feroli added that Mr. Powell “will easily stir up a solid majority of those who want to keep rates on hold.” “Changes in the statement after the meeting are unlikely to provide any significant policy signals.”
(Reporting by Howard Schneider; Editing by Paul Simao)
