Fed Chairman Powell sends a frustrating message about future interest rate cuts

Federal Reserve chair Jerome Powell offered an upbeat report on the US economy after the Fed’s first policy meeting in 2026.

“Essentially, the economy has surprised us again with its strength,” Powell said.

But central bank officials left interest rates unchanged on the benchmark federal funds rate, which influences short-term borrowing such as credit card interest rates, auto financing and student loans.

And for the disappointment of the main street and Wall StreetPowell declined to comment on future interest rate cuts this year.

We’re not trying to articulate a test of when to cut next or whether to cut at the next meeting,” he said. “What we’re saying is that we’re well-positioned as we make decisions on a meeting-by-meeting basis, looking at the incoming data, the evolution of the outlook and all of that.”

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The Federal Open Market Committee voted 10-2 to keep interest rates steady between 3.50% and 3.75% after three consecutive 25 percentage point cuts at the last three meetings in 2025.

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Fed governors Stephen Miran and Christopher Waller disagreed. It was the first FOMC break since July 2025.

“The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter labor demand and for employment over time,” Powell said.

The Fed chief reiterated that the labor market has shown signs of stabilization, but added, “I wouldn’t go too far with that,” noting that there were also signs of continuous cooling.

Market reaction was very muted for a Fed decision day.

After the S&P 500briefly touched 7,000 for the first time in the morning, the index closed flat on the day, as did the Treasury to 10 years to 4.24%.
The dxy The dollar index closed slightly higher, following declines in previous trading days.

The Fed’s dual mandate in Congress requires it to balance inflation and employment growth through interest rates.

The two goals often conflict, operate on different timelines, and are influenced by unpredictable global events.

After the December rate cut, Powell said the rate cut led to monetary policy “within a wide range of neutrality”.

A neutral rate does not stimulate or slow down economic growth.

The Fed last paused interest rates in September 2023, keeping the funds rate between 5.25% and 5.50% after a rapid tightening cycle aimed at curbing post-pandemic inflation.

The pause lasted nearly a year as policymakers wanted to see whether higher borrowing costs could tame inflation without sending the economy into a recession.

During this pause, inflation gradually cooled and the labor market remained resilient.

The central bank resumed cutting rates in September 2025 once Fed officials were confident that inflation was moving sustainably toward the Fed’s 2% target.

In a statement, the FOMC said economic activity has expanded at a solid pace.

“Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated,” the statement said.

Brian MulberrySenior Client Portfolio Manager a Zacks Investment Management, said the FOMC statement showed some measurable changes even as policy rates remained steady.

“Not uncontrolled bullish sentiment, but a clear recognition that ‘Available indicators suggest that economic activity has expanded at a solid pace,'” Mulberry said. “Remember that the December SEP shown GDP growth at just 2.0%, it looks like they may be upgrading that at the March meeting to a much more robust and realistic number.”

“Inflation remains above target and has shown recent signs in both headline and core pce/IPCthat make most votes uncomfortable about lowering rates, further progress is needed to continue the easing cycle,” Mulberry said.

The most viewed CME Group FedWatch Tool estimates that the Fed’s next quarter-percentage-point cut is:

March 18: 13.5%
April 29: 24.1%
June 17: 47.5%

Jeffrey Hibbeler, Director of Portfolio Management a Egència Patrimonial Advisorssaid that “there was no updated guidance on this balance sheet politics, i purchases of short-term Treasury securities will continue in order to maintain an ample supply of reserves, as already announced in December.”

While Powell believes that a good deal of policy normalization is done and the funds rate is around a neutral level, cooling inflation could allow the rate to be cut, Hibbeler said.

“Inflation is expected to cool as the tariff effects wear off; however, if employment improves with growth, this will likely keep service inflation sticky. Overall, a change in policy will likely fall to the next Fed chair, whose term begins at the June meeting,” Hibbeler said.

In a press conference following the announcement, Powell said the labor market appears more stable and that most things tariff impacts Goods inflation should overtake prices by mid-2026.

Bloomberg Economics’ Anna Wong said “We called for peak pass-through rates last October and Powell seems to agree with us.”

He described the economy as “stronger” and “growing,” adding that it appears to be on the “upper end” of neutral.
The tension between strong growth and a soft labor market has been solved a littlePowell said.
Upside risk for inflation i downside risk for employment both appear to have declined since the December meeting, Powell said.

“If demand and supply are in balance, you could say it’s full employment,” Powell said. “But at the same time, do we really feel like it’s a full-employment economy? You know, it’s a very difficult and quite unusual situation.”

President Donald Trump has spent the past year attacking Powell and the FOMC for not cutting rates around 1% or less.

The White House maintains that this will stimulate the stagnant real estate market and reduce the amount of iinterest on the nation’s debt which currently ranges from approximately $38.4 trillion to $38.5 trillion.

This week’s meeting comes after dramatic episodes that say Fed watchers were instigated by the White House to influence lower rates and compromise the central bank’s independence.

The Supreme Court heard arguments on January 21 of Fed Governor Lisa Cook try to stop Trump’s attempt to fire her for cause over mortgage fraud allegations.
Powell announced on January 11 The Justice Department issued subpoenas related to a criminal investigation into cost overruns on renovations at Fed headquarters.
Trump has said he will soon announce his nominee to replace Powell as chairman in May, a nominee the president has insisted will follow his lead on monetary policy..

Despite persistent attempts by reporters to elicit reaction to the political drama, Powell declined to comment on most questions except to offer the following words of advice to the next Federal Reserve chairman:

“Stay out of elected politics. Don’t.”

Powell also expressed confidence that the Fed’s independence will be guaranteed in the future.

This story was originally published by The Street on January 29, 2026, where it first appeared in the Fed section Add TheStreet as a Preferred Source by clicking here.

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