Fed leaves rates unchanged with economy ‘on a firm footing’ 

The Federal Reserve is leaving short-term interest rates unchanged, a decision that many economists anticipated ahead of the central bank's first meeting of 2026.

The move comes on the heels of three consecutive 25-basis-point cuts in the second half of 2025. After the third cut in December, Fed Chair Jerome Powell indicated that officials were ready to hold off on additional cuts now that rates are in a more neutral range of 3.5% to 3.75%.

Of the Federal Open Market Committee's 12 voting members, two voted against the Jan. 28 decision. Fed Governors Christopher Waller and Stephen Miran had both wanted to lower rates by 25 basis points, according to a Fed news release.

Why rate cuts are on hold

The U.S. economy started 2026 "on a firm footing," Powell said during a Jan. 28 press conference. But subdued labor market growth, a stabilizing unemployment rate and inflation — which he noted has "eased significantly" since mid-2022 — were all reasons to leave rates unchanged.

The Fed indicated that it is open to adjusting its monetary policy approach as economic signals shift. In addition to labor market and inflation data, officials said they will take "financial and international developments" into account in the months ahead.

Powell previously predicted that the housing supply crunch in particular would "be a problem" — and housing-related activity is still "weak" in contrast with consumer spending and business fixed investment, he said.

What could prompt another rate cut

Moving forward, "a weakening labor market would be an argument" for lowering rates, Powell said. But that alone wouldn't guarantee a cut. "If inflation were at the same time getting worse, you just have a very difficult situation," Powell continued, adding that the Fed will be "looking at both" variables.

The possibility of new tariffs "is not helping the situation," according to William Raveis Mortgage Regional VP Melissa Cohn. "Until there is further economic data to support another rate cut, they will keep the Fed Funds rate as is," she predicted.

What'll happen next with mortgage rates?

Since the Fed wasn't expected to cut short-term interest rates, economists aren't anticipating significant movement in mortgage rates. Chen Zhao, Redfin's head of economics research, doesn't foresee the Fed cutting rates again "until at least this summer," adding that mortgage rates "are unlikely to change much" during that time.

The 30-year fixed-rate mortgage has fluctuated in recent weeks amid escalating international tensions and the Trump administration's housing-related policy proposals — developments that were unrelated to the Fed's January meeting.

"The past 10 days are a textbook reminder that the Fed's influence over mortgage rates is limited," said Jake Krimmel, senior economist at Realtor.com.

Fed faces intensifying political pressures

The Fed meeting was held against a backdrop of increasing concern about the agency's ability to continue operating independently.

Earlier this month, Powell became the focus of a U.S. Department of Justice (DOJ) investigation related to his testimony about plans to renovate the Fed's headquarters — something Powell referred to as a "pretext," suggesting it is actually a response to the Fed's rate cut decisions last year.

A collection of international central bankers joined several former Fed chairs, Treasury secretaries and White House economic advisors in criticizing the DOJ for targeting Powell.

While Powell declined to comment further on the investigation during Wednesday's press conference, he spoke generally about the importance of central banks retaining their independence.

"To not have direct elected official control over the setting of monetary policy" is "an institutional arrangement that has served the people well" in democracies around the world, Powell said, adding the loss of that independence would make it "hard to restore the credibility of the institution."

But "we haven't lost it," Powell said, and "I don't believe we will."