Fed stands pat on rates in first meeting of 2026, despite Trump’s push for cuts

The Federal Reserve took a wait-and-see approach on Wednesday by keeping its benchmark interest rate steady after a series of cuts to close out 2025.

The Federal Open Market Committee kept its benchmark rate at 3.5%-3.75% in its first meeting since the Justice Department launched an investigation of Fed Chair Jerome Powell in what he described as an attempt to pressure him to lower rates.

Central bankers wanted to see how a trio of recent cuts would affect the economy, ignoring President Trump’s push to reduce rates again.

Two Trump appointees, Stephen Miran and Christopher Waller, wanted to reduce rates by 0.25%, while every other member of the committee voted to keep rates steady.

The Fed is trying to balance lingering concern about inflation, which argues against another cut, with worries about a sluggish job market.

“While job gains have remained low, the unemployment rate has shown some signs of stabilization, and inflation remains somewhat elevated,” Mr. Powell said at a press conference.

He said economic activity remains robust, with “resilient” consumer spending and business expansion. 

“In contrast, activity in the housing sector has remained weak,” Mr. Powell said. “The temporary shutdown of the federal government likely weighed on economic activity last quarter, but these effects should be reversed as the reopening boosts growth this quarter.”

Fed decisions affect interest rates for savings, loans and investments, influencing consumer spending and business activity.

Mr. Trump says lower rates would work in tandem with his tax-cut, tariff and deregulation agenda to juice the economy. 

He believes the Fed has been too cautious and that American borrowers deserve better terms on mortgages and other costs.

Also, the president says his tariffs have not sparked the type of rampant inflation that some economists feared.

Mr. Powell said inflation has cooled significantly from a few years ago, though remains above the Fed’s target rate of 2%. The most recent Consumer Price Index report said prices rose at 2.7% for the year ending in December.

Mr. Trump has criticized Mr. Powell relentlessly over inaction on rates, and he faulted the chair for cost overruns at a $2.5 billion renovation project at the Fed.

The Department of Justice sent subpoenas to the Fed this month as part of a criminal inquiry into the project.

Mr. Powell issued a stark video statement condemning the move as intimidation.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Mr. Powell said.

The chair refused to engage on the subpoena controversy at his press conference on Wednesday, referring the media back to his statement.

Mr. Powell’s term ends in May, so Mr. Trump is in the final stages of picking a replacement.

White House National Economic Council Director Kevin Hassett is considered a front-runner, though others are in the mix, including former Fed Governor Kevin Warsh and Rick Rieder, a BlackRock executive.

Treasury Secretary Scott Bessent said there are “four great candidates,” indicating the pool of possible Powell replacements is bigger than previously thought.

“We haven’t narrowed it down,” Mr. Bessent told CNBC, adding that “only the president knows” when the decision will be announced.

Mr. Trump is trying to reshape the Fed in other ways, too. His decision to fire Fed Governor Lisa Cook over allegations of mortgage fraud resulted in a legal fight that reached the Supreme Court.

At oral arguments, the justices expressed worry over the firing, suggesting it undermines the independence of the Fed and would invite retaliation by future presidents.

On Wednesday, Mr. Powell defended his decision to attend the arguments, noting that Fed Chair Paul Volcker attended a court argument in 1985.

“It’s precedented, and I thought it was an appropriate thing, and I did it,” Mr. Powell said.