Strong Consensus on FOMC Decision: Rates Likely to Remain Unchanged

The Federal Reserve’s first policy decision of 2026 is just hours away, with the FOMC wrapping up its two-day meeting and announcing its interest rate stance this afternoon. Markets and economists are on high alert for any signals about the path ahead in a year shaped by resilient growth, lingering price pressures, and intense political dynamics.


Strong Consensus


The central bank is overwhelmingly expected to hold its benchmark federal funds rate steady in the current target range of 3.50% to 3.75%. This follows three consecutive 25-basis-point cuts in the closing months of 2025, which provided meaningful relief to borrowing costs. Market pricing tools show near-unanimous odds—around 95% to 97% probability—of no change today, with only a tiny fraction suggesting even a modest cut. The pause reflects a deliberate shift to assess how those prior easings are filtering through the economy, allowing time to gauge whether further adjustments are warranted soon or can wait.


Inflation Proves Persistent, Staying Above the 2% Goal


Price trends continue to show stickiness, keeping officials cautious about rushing into more easing. The Consumer Price Index for December 2025 rose 2.7% year-over-year, holding steady from the previous month and aligning with expectations. Core measures, which exclude volatile food and energy, hovered around 2.6% annually, with notable contributions from shelter, services, and other categories.

These levels remain clearly above the Fed’s preferred long-term target of 2%, influenced by ongoing factors like housing costs and broader services inflation. The data reinforces a view that disinflation is progressing slowly, reducing the immediate case for rate reductions while officials monitor for clearer downward momentum.


Labor Market Shows Cooling but Remains Resilient


Employment indicators point to a gradual slowdown without tipping into distress. Nonfarm payrolls added only 50,000 jobs in December 2025, marking a modest increase and the softest annual hiring pace in years outside recessionary periods. Revisions to prior months highlighted cautious hiring amid uncertainties.

However, the unemployment rate dipped to 4.4%, signaling stability in job retention, with labor force participation steady around 62.4%. A broader gauge of underutilization, including part-timers for economic reasons and discouraged workers, improved to about 8.4%. This balanced picture—easing demand for labor paired with low layoffs—supports the notion of a soft landing, where the economy can afford a period of observation before any next moves.


Why the Hold? Data Dependency and Balanced Risks


The anticipated pause stems from a comfortable assessment of the current landscape: solid consumer-driven growth, potential boosts from fiscal measures like tax adjustments, and the lagged benefits of 2025’s cuts already in play. The economy is seen as approaching a neutral policy setting, where rates neither overly stimulate nor constrain activity. With inflation not yet decisively cooling and jobs holding firm, there’s no pressing need for action today.

Forward-looking views suggest limited additional easing in 2026—perhaps one or two quarter-point cuts, most likely starting mid-year (e.g., June) or later—if incoming data supports it, potentially guiding the range toward 3.00%–3.25% by year-end. Officials stress reliance on fresh evidence from prices, employment, and activity to guide decisions.


Hold the Line! Fed Set to Freeze Rates Amid Trump Pressure

The decision arrives amid significant external noise, including repeated calls but US President Donald Trump for aggressive cuts, ongoing investigations tied to leadership, legal challenges involving board members, and speculation over the upcoming transition as the current chair’s term ends in May. These elements heighten attention on the Fed’s independence, yet the expected outcome underscores a focus on economic fundamentals over outside influences, prioritizing the dual mandate of price stability and maximum employment.


As the policy statement drops this afternoon—followed by the press conference—attention will shift to any updated economic projections, tweaks in language, or hints about the rest of the year. While today’s verdict carries little surprise in terms of the immediate rate level, it will provide crucial clues on how policymakers navigate inflation’s stickiness, labor’s moderation, and the broader 2026 outlook in an environment full of crosscurrents.