Introduction to the US Federal Reserve’s Interest Rate Decision
The United States Federal Reserve has announced its decision to hold interest rates steady at 3.5 to 3.75 percent. This move comes as a surprise to some, as US President Donald Trump had been calling for more aggressive interest rate cuts. The decision was made in the Fed’s first rate decision of 2026 and was widely expected by experts.
The Reasoning Behind the Decision
The Federal Reserve seeks to achieve maximum employment and inflation at a rate of 2 percent over the longer run. However, the central bank stated that uncertainty about the economic outlook remains elevated. The decision to hold rates steady was based on available indicators suggesting that economic activity has been expanding at a solid pace, despite job gains remaining low and the unemployment rate showing some signs of stabilization.
The Current State of the US Labour Market
The US economy added 584,000 jobs in 2025, marking the lowest annual job growth since 2003. While job growth remains weak, December’s figure represents a modest rebound from October, when the economy lost 105,000 jobs. However, there are indications that the labour market may cool further in the months ahead, with companies such as Amazon and UPS announcing tens of thousands of job cuts.
Threats to the US Economy
A looming government shutdown poses a significant threat to the US economy and the job market. If the shutdown occurs, it could slow spending as federal workers are temporarily left without paycheques. This, combined with the potential for further job cuts, could have a significant impact on the US economy.
Political Tensions
The decision to hold interest rates steady comes despite Trump’s increased pressure on the central bank to cut rates. Fed Chairman Jerome Powell has long stressed the Federal Reserve’s independence and has pushed back against Trump’s attempts to influence the central bank’s decisions. Powell has stated that the threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on its best assessment of what will serve the public, rather than following the preferences of the president.
Global Implications
The political pressure on the Federal Reserve has caught the attention of global central banks. The Bank of Canada Governor, Tiff Macklem, stated that the Federal Reserve is the biggest and most important central bank in the world and that a loss of independence would affect all central banks. Macklem was one of the central bank heads who issued a joint statement backing Powell and has previously stated that Trump’s attempts to pressure the Fed were starting to hit markets.
Conclusion
In conclusion, the US Federal Reserve’s decision to hold interest rates steady is a significant move that has been influenced by a range of factors, including the current state of the US labour market and the political tensions between the Fed and the Trump administration. As the US economy continues to evolve, it will be important to monitor the actions of the Federal Reserve and the impact of political pressure on its decision-making process. The implications of this decision will be far-reaching, and it will be interesting to see how the US economy responds in the coming months.
