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Central Bank Watch

Fed on Hold till Powell Leaves as Fed Chair in May

ADMIN || 29th January 2026

Fed officials kept interest rates unchanged, as expected, and signalled a willingness to keep them on hold as they wait to see how the economy evolves. Chair Jerome Powell said that the labor market seems more stable and that most of the tariff impacts on inflation should work their way through prices by the middle of 2026.

Powell declined to answer questions about the Department of Justice’s investigation into him and about whether he’ll stay at the Fed as governor once his term as chair ends in May. The Fed chief referred reporters in today’s press conference to his statement earlier this month after the government served him with subpoenas.

The Fed’s post-meeting statement indicated that policymakers now see the risks to the employment and inflation mandates as balanced, whereas many last year had been more concerned about the labor market. That helped some market participants pare back bets for a June rate cut, though that’s still when most see the next move occurring.

Two governors dissented in favor of a rate cut: Stephen Miran, the latest Trump appointee to the Fed, and Christopher Waller, who is in the running to succeed Powell as chair. Vice Chair for Supervision Michelle Bowman, who has expressed ongoing concern about the labor market, voted with the majority of the committee to leave rates on hold.

Market reaction was muted: US stock gains faded after a tech-led rally that drove the S&P 500 briefly above 7,000. Bonds barely budged from 4.24% on 10 year UST.

We believe the Committee views the current stance of monetary policy as well positioned to deal with upside risks to inflation or downside risks to the labor market. Many policymakers probably view those risks as in better balance than they were in recent months. We continue to see two rate cuts of 25 bps each in June & Sep as a new Fed Chair arrives.

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