Fed holds rates steady, pointing to improvements in US economy

Upgraded assessment of job market likely to keep expectations for a near-term cut at bay

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Federal Reserve officials left interest rates unchanged and pointed to improvements in the US economy as they signalled a more cautious approach to potential future adjustments.

The Federal Open Market Committee voted 10-2 on Jan 28 to hold the benchmark federal funds rate ina range of 3.5 per cent to 3.75 per cent. Governors Christopher Waller and Stephen Miran dissented in favour of a quarter-point reduction.

Ina post-meeting statement, policymakers said “job gains have remained low, and the unemployment rate has shown some signs of stabilisation”. Officials also dropped language pointing to increased downside risks to employment that had appeared in the previous three statements.

The upgraded assessment of the labour market is likely to keep expectations for a near-term rate cut at bay, despite escalating pressure from the Trump administration. Investors see another cut as unlikely until at least June.

The US dollar edged lower from the day’s high, which came after Treasury Secretary Scott Bessent touted a strong-dollar policy earlier. The S&P 500 was also little changed following the widely expected decision.

In remarks to reporters after the meeting, Federal Reserve chairman Jerome Powell further talked up a “clear improvement” in what was expected for the US economy in the year ahead.

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

He reiterated that the labour market has shown signs of stabilising, but added, “I wouldn’t go too far with that”, noting that there were also signs of continued cooling.

He demurred when asked what it may take for the committee to cut again.