The Federal Reserve is widely expected to hold interest rates steady at its policy meeting this week, following three successive cuts at the end of 2025. So all eyes will be on how long officials signal they plan to hold rates steady.
“My expectation is they’re signaling a pause,” Esther George, former president of the Kansas City Federal Reserve, said in an interview. “I have a feeling they’re going to hold for a while.”
In recent weeks, several prominent members of the Fed, including New York Fed president John Williams and Fed Governor Michael Barr, have used the phrase “policy is in a good place.”
Read more: How a Fed rate cut affects your bank accounts, loans, credit cards, and investments
“That’s the signal to say this gives us flexibility to move either direction,” George said. “We’re not going to say we’re on a preset course; we’re just going to go meeting by meeting.”
The central bank cut rates three times last fall to a range of 3.5% to 3.75% — within estimates of a neutral stance designed to neither spur nor slow economic growth.
Wilmer Stith, senior bond portfolio manager for Wilmington Trust, said he doesn’t think the Fed will box itself in to taking a pause on lowering rates, anticipating that Fed Chair Jerome Powell will show flexibility.
“I don’t think there will be a whole lot of activity other than holding rates. The Fed is at a point where they can be patient and we don’t need to do anything. Short, sweet,” Stith said.
“I think it’ll be see what data says, decide, and wait for more data and decide, gently gliding down their landing.”
After last fall’s expansionary policy moves, Fed officials are watching the job market and inflation, and would be expected to move when the data suggests the risks have shifted.
Read more: Jobs, inflation, and the Fed: How they’re all related
EY-Parthenon chief economist Gregory Daco says with rates now within the neighborhood of neutral and inflation running closer to 3% than 2%, future rate cuts hinge on clear evidence of inflation falling or renewed deterioration in the job market.
“Policy may already be near neutral, meaning future easing will proceed more slowly and with greater data dependence,” Daco said.
Looking ahead, he expects 50 basis points of easing in 2026, but not until the second half of the year, as the job market gradually softens and inflation hovers just below 3% in the first half of the year before easing toward 2.5% by year-end.
‘Dispersion on the committee’
There’s also deep division among policymakers when it comes to the outlook for inflation and the job market.
“There’s a desire to continue cutting,” George said. “But the dispersion on the committee is telling you this is going to get harder as they come into this year because overall inflation is going to have to take really a convincing turn as opposed to just trying to pick through components of it that look like they’re turning.”
Minutes from the December meeting indicated that some members went along with that rate cut only reluctantly. And the rotation of new regional Fed bank presidents into voting member positions could bring more votes for those who favor holding rates steady to rein in inflation. Cleveland Fed president Beth Hammack, Dallas Fed president Lorie Logan, and Minneapolis Fed president Neel Kashkari, all new voting members, are looking to hold the line.
But Fed governor Stephen Miran, who has repeatedly dissented since joining the Fed board last fall in favor of cutting rates more quickly, is likely to dissent again. Governors Michelle Bowman and Chris Waller are other possible dissenting votes, given the concerns they’ve raised about the job market.
“Absent a clear and sustained improvement in labor market conditions, we should remain ready to adjust policy to bring it closer to neutral,” Bowman said last week. “We should also avoid signaling that we will pause without identifying that conditions have changed.”
Luke Tilley, chief economist for Wilmington Trust, says while he doesn’t expect the Fed to cut rates this week, he thinks the data supports a cut because job growth is anemic.
He pointed to what Powell said in December: his belief that recent jobs reports are overstated by 60,000 jobs — meaning job growth is now negative.
Tilley noted that outside of healthcare, other sectors cut jobs since President Trump implemented sweeping tariffs last spring. He said he expects the unemployment rate to tick back up by about another half percentage point to 4.9% or 5% by mid-year after dropping to 4.4% in December.
“By mid-year they will have cut because I don’t think the labor market is healthy,” Tilley said. “I think they’re going to keep getting weaker numbers and downward revisions. The unemployment rate is going to be moving up, and that’s going to push them too.”
Tilley expects three more cuts starting in March and going through mid-year to get the Fed to the range of 2.75% to 3%, a level he views as neutral.
Tension hangs over Fed
The meeting comes as the Trump administration’s rebuke of the central bank’s policy has reached a fever pitch during the president’s second term.
Last week brought oral arguments in the Supreme Court case over whether President Trump has the authority to remove Fed governor Lisa Cook just after the Justice Department leveled a criminal investigation against Powell over his Senate testimony about renovations of the central bank’s headquarters.
The president could also announce his pick for the next Fed chair this week.
Some have said the outside pressure may cause central bankers to dig in their heels against rate cuts.
But Fed governor Barr told Yahoo Finance recently, “We are acting only for economic reasons. We are acting only according to our congressional mandate. That’s to make sure that we have price stability and maximum employment. That’s what we’ve been focused on all along, and that’s what we will stay focused on.”
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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