US Fed Holds Interest Rate at 3.5–3.75% to Stabilize Jobs and Tame Inflation

The United States Federal Reserve has decided to keep its benchmark interest rate steady at 3.5–3.75%, citing the need to stabilize the labor market while bringing inflation closer to its 2% target. Fed Chair Jerome Powell announced the decision following the Federal Open Market Committee (FOMC) meeting on Wednesday, emphasizing the central bank’s commitment to both employment and price stability.

Powell highlighted that the US economy grew at a solid pace throughout 2025 and is entering 2026 on “a firm footing,” despite inflation remaining “somewhat elevated” and job gains slowing over recent months. “In support of our goals, the committee decided to maintain the policy rate unchanged,” he said, noting that the Fed has already reduced rates by 75 basis points since September to bring policy closer to neutral.

Consumer spending and business investment continue to show resilience, Powell said, though the housing sector remains weak. He also noted that the temporary government shutdown likely slowed economic activity in the final quarter of 2025, but expects normal operations to reverse these effects in early 2026. Meanwhile, the unemployment rate held steady at 4.4% in December, reflecting stabilization after a period of gradual softening.

Inflation has eased from its mid-2022 highs but remains above the Fed’s long-term goal. Powell explained that higher prices in the goods sector, influenced by tariffs, are a key driver of the current elevated inflation, while the services sector is showing signs of disinflation. According to the latest data, total PCE prices increased 2.9% over the past year, with core PCE prices up 3% excluding food and energy.

Looking ahead, Powell reaffirmed the Fed’s cautious but flexible approach, stating that any future rate adjustments will depend on incoming economic data and risk assessments. “Our commitment remains to support maximum employment, bring inflation sustainably down to 2%, and keep long-term inflation expectations anchored,” he said, signaling a careful balance between fostering growth and curbing price pressures.

source: The cable