The Federal Reserve held interest rates at 3.5% to 3.75% on Wednesday, in its first pause since July and following three consecutive quarter-point cuts in fall 2025.
The decision came amid intense political pressure on the central bank from the White House. US president Donald Trump has demanded rate cuts and the Department of Justice has opened a criminal probe into Fed chair Jerome Powell.
Powell said losing independence would make it “hard to restore the credibility of the institution”. When asked if he remained confident the Fed could maintain independence, he said: “Yes – I mean, I am strongly committed to that, and so are my colleagues.”
The Fed upgraded its economic assessment to ‘solid’ from ‘moderate’ in its statement and Powell said rates do not appear “significantly restrictive” given the economy’s performance.
“The economy has once again surprised us with its strength,” Powell said, adding that US inflation had performed “about as expected” and pointing to “evidence of stabilisation” in labour market data.
The US economy grew at 4.4% in the third quarter of 2025. The PCE inflation measure registered 2.8% in November, above the Fed’s 2% target. The economy added 50,000 jobs last month.
Two members voted for a 0.25% cut: Christopher Waller and Stephen Miran. Waller is a potential candidate to succeed Powell as Fed chair while Miran is currently on leave from the White House Council of Economic Advisers to sit on the rate-setting committee.
Earlier this month, the Department of Justice opened a criminal investigation into Powell’s testimony about a $2.5bn Fed building renovation. Powell declined to comment on the probe last night but previously said it stems from Trump’s anger over the pace of rate cuts.
Trump has pressured Powell to cut rates and made personal attacks on the Fed chair. The president called Powell a “moron” for not reducing rates.
Powell attended a Supreme Court hearing on Trump’s attempt to remove Fed governor Lisa Cook. He called it “perhaps the most important legal case in the Fed's 113-year history”.
Powell’s term as chair ends in May and Trump is expected to announce a replacement soon.
John Wyn-Evans, head of market analysis at Rathbones, said: “After weeks of headlines about the Federal Reserve’s independence, possible criminal charges against Powell and speculation over his successor, it was almost refreshing to see it return to the business of monetary policy.”