Fed meeting updates: Interest rates hold steady, Jerome Powell stays silent on major controversies

It's the first Fed day of 2026, and Chair Jerome Powell is in the hot seat.

The central bank announced it would hold its benchmark interest rate steady, as was widely expected. The meeting follows weeks of political pressure from the Trump administration and a recently announced Department of Justice probe.

Business Insider will be covering projections from economists, the Fed decision, and market moves all day. Check back here for updates.

Powell stayed quiet about his potential successor

Powell did not answer a question on the Fed chair race and whether he plans to collaborate with his successor.

In the December meeting, he gave a different answer to a similar question: "I really want to turn this job over to whoever replaces me with the economy in really good shape," he said. "I want inflation to be back down to 2% and I want the labor market to be strong — that's what I want. All of my efforts are to get to that place."

Powell didn't answer a direct question about Sen. Thom Tillis, but defended the Fed's independence

After dodging an initial question about the retiring North Carolina senator's pledge not to vote for Trump's Fed nominees while the DOJ investigation continues, he answered a follow-up on political interference in monetary policy.

"The point of independence isn't to protect policymakers," Powell said, arguing that it's intended to keep the central bank focused on the economy.

"Every advanced economy, democracy around the world has come around to this common practice. It's just an institutional arrangement that has served the people well. That is, to have a separation, to not have direct elected official control over the setting of monetary policy," Powell said.

He noted that monetary policy could be used to affect electoral outcomes, and said that it would be "hard to restore the credibility of the institution" if the Fed's neutrality from political independence is lost.

Powell said there was broad support for a hold

Powell said there was "broad support" on the FOMC for holding today, including among non-voters. Though "there are different views on the committee" over which side of the dual mandate — stable prices and maximum employment — takes priority when data is ambiguous.

He said that the majority of tariff impacts have moved through the economy, and trade policy is a reason why inflation remains above the Fed's 2% goal. If consumer prices begin to ease, or if job market challenges improve, it might call for looser policy.

Powell made no predictions for future cuts

Powell said the Fed is well-positioned to balance its dual mandate and "the economy is growing at a solid pace." He said "inflation performed as expected" and there are some optimistic signs in the labor market, even if hiring remains low. But he made no promises on future rate cuts.

"Policy is not on a preset course," he said. "We're making decisions on a meeting-by-meeting basis." He said policy is currently neutral or somewhat restricted. "It's in the eye of the beholder," he said.

What economists and market experts have to say about the latest rate decision and its effects

Elizabeth Renter, NerdWallet's senior economist, said the latest decision means the Fed views the job market "as cool, but stable," so they can now focus on the stubborn inflation rate that remains above the Fed's target.

"If the labor market data indicated convincing or inevitable weakness, they'd cut, but that simply isn't the case," Renter said.

Kay Haigh, global cohead of fixed income and liquidity solutions in Goldman Sachs Asset Management, said "moderation in inflation allows for two further 'normalization' cuts" to bring rates back to where the Fed thinks they won't overheat or excessively cool the economy.

However, if the Fed continues to hold rates steady in the months ahead, it could mean consumers don't see relief for a while.

"Given the likely pause in further interest rate cuts, consumers waiting for further interest rate reductions before purchasing vehicles or homes, or refinancing existing higher-rate mortgages, will likely need to wait a bit longer," said Charlie Wise, senior vice president of research and consulting at TransUnion.

Powell dodges question on the dollar

The US dollar has weakened over recent days, but Powell said it's "not appropriate" for Fed leaders to comment on markets or currency.

"We do monetary policy and some other things but we don't comment on the dollar," he said.

Powell stays silent on major controversies

The first question in the press conference was on Powell's recent visit to the Supreme Court in the Lisa Cook case. While he said it's not okay for him to respond to comments from political officials like Treasury Secretary Scott Bessent, he said it was the "most important legal case in the Fed's 113-year history," so he felt it was appropriate to attend the oral arguments.

He said he was "not going to expand" on his video statement on the DOJ investigation and did not confirm if the Fed has responded to grand jury subpoenas. Powell said he "didn't want to get into" his future at the central bank when asked about remaining on the FOMC through 2028.

Powell says the economy is on 'firm footing'

To open the press conference, Powell said the economy is "coming into 2026 on firm footing." The Fed is focused on its dual mandate of stable prices and maximum employment, he said, and the US employment rate has seen "some signs of stabilization."

He said that consumer sentiment is "resilient," though job gains have remained low, the housing sector is "weak" and the recent government shutdown weighed on economic activity. The economic situation is becoming more balanced, but there is still a decline in labor force growth due to low demand and declining immigration. This calls for steady rates, he said.

A change in the employment outlook

The Fed may be holding rates steady, but the central bank did make a notable change to its economic picture this month. In Wednesday's news release, FOMC leaders removed the phrase "downside risks to employment rose in recent months," which has been included in almost every release from the past few months.

The committee said that job gains remain low and inflation is still somewhat elevated, but removing the "downside risks to employment" phrase from the Fed's economic assessment is good news for job seekers. It means Powell and company see a labor market in recovery.

What we're listening for from Powell

Powell will begin the Fed's January press conference at 2:30 p.m. He will give an overview of the current economic situation, including the inflation and employment data the Fed is closely watching.

The central bank chair will then take questions from journalists. We expect Powell will be asked about the DOJ probe, ongoing political pressure from the Trump administration, tariffs, the impact of AI on the job market, and more. Powell's answers could foreshadow future monetary policy and plans for his final months at the Fed.

Stocks are flat after rate decision, traders brace for Powell remarks

Major indexes were flat after the Fed opted to keep interest rates unchanged.

"Focus, naturally, now turns to Chair Powell's press conference," wrote Michael Brown, senior strategist at Pepperstone. "Powell will likely, again, note that the FFR is now within a reasonable range of estimates as to where the neutral rate may lie, though will probably steer well clear of any questions on his plans post-May, or on ongoing attempts to erode the Fed's policy independence."

The S&P 500 was in the red after the decision, reversing an earlier rally that had brought the benchmark index above 7,000 for the first time ever.

Continued division among Fed members

The committee has had a split on interest rates at every meeting since July — and this month is no different. Ten FOMC members, including Powell, voted in favor of the hold, but there were two dissents. Stephan Miran and Christopher Waller preferred a quarter-point cut.

The Fed holds rates steady

The Fed will hold its benchmark interest rate steady between 3.5 and 3.75%, in alignment with expectations. The move breaks a pattern of rate cuts over the past several months. Powell will hold a press conference at 2:30 p.m. ET to discuss.

How the Fed impacts consumers

Central bank decisions trickle down to consumers through mortgage and credit card rates, auto loans, and savings accounts. The borrowing rates for these typically follow the same pattern as the Fed. Higher interest rates can help curb rising prices, but still-high borrowing costs could push companies toward layoffs or hiring freezes over time. It's unlikely Americans will feel the impact of a single rate call, but sustained cuts or hikes can have an effect over time.

Division within the FOMC

The typically uniform Fed has been increasingly divided in its decisions. At the December meeting, the FOMC had its most split call since September 2019 with three dissents. Recent Trump appointee Stephen Miran repeatedly voted for steeper rate cuts last year. Others, like Jeffrey R. Schmid, urged a more cautious stance.

It's possible that January's rate call will be another split decision for the committee.

The search for Powell's successor

Topcontenders to succeed Powell include former Fed Governor Kevin Warsh, Chief Investment Officer of global fixed income at BlackRock Rick Rieder, Trump's economic advisor Kevin Hassett, and Fed Governor Christopher Waller. Rieder is leading prediction markets.

Treasury Secretary Scott Bessent is in charge of the process, though any nominees are likely to hit roadblocks in Congress over the DOJ probe.

"The hope is that whoever takes Powell's role next will be similarly data driven and level headed," Elizabeth Renter, the senior economist at NerdWallet, said. "A Fed that is vulnerable to political pressure is one that will struggle to be effective at guiding economic stability."

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Trump's vision for the Fed

Trump has been vocal about his desire for lower interest rates, threatening to fire Powell and dubbing him with the moniker "Too Late." The president told The Wall Street Journal earlier this month that he hopes the next Fed chair will consult with him more closely on monetary policy. "I'm a smart voice and should be listened to," he said.

Trump added in his Davos speech that he's interviewing potential Powell successors: "Everyone that I interviewed is great. Everyone could do, I think, a fantastic job," he said, continuing, "It's amazing how people change once they have the job. It's too bad, sort of disloyalty."

Stock rally cools before 2 p.m. FOMC decision

Stocks were steady ahead of the rate decision and Jerome Powell's press conference. The S&P 500 pulled back from its record above 7,000 as the tech-led rally stuttered. Markets will be listening closely for updates from Powell on where he sees interest rates going through the rest of his term, but also any clues that could hint at what his successor might do.

"Markets expect Chair Powell to end his leadership term without cutting rates again. They also believe that his successor will be similarly cautious, with heavy odds (+70 percent) that Fed Funds will be within 25 basis points of 3.0 percent in December 2027," wrote Nicholas Colas, co-founder of DataTrek Research, on Wednesday.

Concerns over Fed independence

Both the DOJ probe and Cook case have sparked widespread concern over the Fed's future, as the bank has long operated as independent and nonpartisan.

Ten heads of various world banks released a letter defending Powell, as did a group of state-level treasurers and auditors.

"We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell," the letter from global bank leaders read. "The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve."

Lisa Cook at the Supreme Court

The Trump administration accused Fed Governor Lisa Cook of mortgage fraud in August and attempted to fire her, though she has remained in her seat. Her case was heard by the Supreme Court last week, and several judges expressed disagreement with the White House.

"Your position that there's no judicial review, no process required, no remedy available, very low bar for cause, that the president alone determines — and that would weaken, if not shatter, the independence of the Federal Reserve," said Justice Brett Kavanaugh, a Trump appointee.

Powell attended oral arguments for the case in support of Cook, but did not give testimony.

Where the DOJ probe stands

The DOJ probe around Powell's testimony about the Fed renovations is ongoing. Markets and political leaders will be watching Powell's comments in this afternoon's press conference closely. Beyond posting the uncharacteristic video message online to announce the subpoena, he hasn't spoken publicly about the investigation.

Tariffs are still high, but haven't pushed inflation up too much

The effective import tariff rate has spiked to the highest in decades.

Experts have been keeping an eye on just how much tariffs have affected inflation. Elizabeth Renter, senior economist at NerdWallet, said it's challenging to know the extent to which tariffs have had an effect because there are other headwinds, such as supply chain and inventory issues. Jason Draho, the head of asset allocation Americas for UBS Global Wealth Management, said tariffs had some effect on goods inflation, but hadn't resulted in a massive surge.

The Supreme Court has yet to rule on the legality of tariffs imposed by the Trump administration using the International Emergency Economic Powers Act.

S&P 500 hits 7,000 for the first time ahead of rate decision

US stocks cruised to records at the open on Wednesday, with the S&P 500 hitting 7,000 for the first time ever. Traders were bracing for the Fed decision, as well as critical earnings updates from mega-cap tech. Tesla, Meta, and Microsoft are due to report fourth-quarter earnings after the closing bell.

Markets are broadly expecting to rates to remain unchanged today. The CME FedWatch Tool shows 97% odds of the target rate remaining in the range of 3.5-3.75%. Views on Wall Street are also mixed on whether the market can expect one or two cuts in 2026.

Glen Smith, chief investment officer at GDS Wealth Management, said, "we expect just one rate cut for 2026, and while the timing of this next rate cut is debatable, it will likely come towards the second half of the year" with a new Fed chair.

Inflation remains above the Fed's target

Fed members can look back at last year's inflation to inform their coming interest rate decision. The inflation rate, based on the consumer price index, ended 2025 lower than it started but remained above the Fed's 2% target.

The year-over-year percent change in the shelter index continued to cool from its 2023 peak.

Unemployment has been low but remains above 4%

The unemployment rate has been at least 4% since June 2024, and ended 2025 at 4.4%. This is historically low, but it comes alongside limited vacancies, low hiring rates, and a decline in the number of Americans quitting their jobs or changing roles compared to a few years ago.

Job growth has cooled

Daniel Zhao, the chief economist at Glassdoor, said last year's job market ended "with a fizzle rather than a bang." The US added 584,000 jobs in 2025, the lowest since 2003, outside recessions.

Economists and job-market experts told Business Insider that the job market was in a low-fire, low-hire environment, partly due to economic uncertainty and reduced demand after the pandemic recovery and the Great Resignation.

A likely hold

It's likely Fed leaders will stick to the status quo in January, in hopes that steady rates will push inflation closer to their 2% goal. Affordability is a major concern for American households, as prices rise on housing, groceries, healthcare, and more. Powell has consistently prioritized price stability during his time as chair.

The Fed is expected to cut rates at least once later this year, a move that could ease costs for borrowers and juice the job market.

Would Powell stay?

Powell's term as chair ends in May, but he's eligible to remain on the Fed committee until early 2028. It's rare for former chairs to stay on as governors, and Powell has not indicated his plans.

But there's been some speculation from Wall Streeters that Trump's threats to the Fed could entice Powell to remain at the bank longer than expected.

The stakes are high ahead of Trump's next Fed chair pick

The DOJ probe news sparked alarm among politicians, economists, and business leaders, many of whom are concerned about the future of the central bank. Powell's term as chair expires in May, and Trump is set to announce his next pick for the role in the coming weeks.

Both Democratic and Republican leaders have signaled the probe jeopardizes the search for Powell's successor.

"If there were any remaining doubt about whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none," North Carolina Sen. Thom Tillis said, adding that he will oppose any Trump nominees to the central bank until "this legal matter is fully resolved."

What's going on in the markets

With around 7.5 hours until the Fed's latest rate decision is announced, things are a bit of a mixed bag in financial markets on Wednesday.

As of 6:30 a.m. ET futures for the three major US indexes are trending higher, with the Nasdaq leading the way, signaling a nearly 1% rise at the open. That's due in large part to its tech focus, with many of the biggest tech firms reporting earnings this week.

Elsewhere, futures for the S&P 500 are 0.4% higher, while the Dow Jones is up less than 0.1%.

In Europe, where markets are open, stocks are a little lower, with the UK's FTSE 100 benchmark down 0.5%, and Germany's DAX falling 0.2%.

Gold's record rally is continuing on Wednesday, with the precious metal extending its gain by another 3% to trade just under $5,300 per ounce. Silver is also higher, gaining 5.4% to trade at $111 per ounce.

All eyes on Powell

Powell posted a video message on January 11 announcing that the Fed received a grand jury subpoena. The Trump administration alleges that Powell committed perjury during a June appearance before Congress, where he discussed renovations to the central bank's Washington, DC, buildings.

Business Insider obtained a letter Powell privately sent to senators detailing the Fed's construction plans and budget — the details of which match his testimony. Powell said that the probe, which could result in a criminal indictment, is an escalation of ongoing pressure from the White House.

"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," he said.

Today is the Fed's first decision of 2026

The Federal Open Market Committee has penciled in one rate cut for the new year. Fed leaders opted for three quarter-point cuts last fall after months of steady monetary policy.

The White House and investors are hopeful for a looser approach to interest rates in 2026. But Powell is in a tough spot: Lower rates could speed up a slow job market, but risk a rise in inflation.

CME FedWatch is predicting a near-total chance of a rate hold on Wednesday.

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