The U.S. Federal Reserve left interest rates unchanged on Wednesday, saying the economy is showing stronger momentum and risks have eased. The central bank voted 10–2 to keep its benchmark rate in the 3.50% to 3.75% range after a two-day policy meeting.

Federal Reserve Chair Jerome Powell said the economic outlook has improved. He noted stronger growth and reduced risks to both inflation and jobs. “The economy has surprised us with its strength,” Powell said at a press conference.

He added that the Fed is in a good position to wait and assess future data before making any further moves on rates.

No urgency for rate cuts

Powell said there is no immediate need to reduce borrowing costs again. However, he made clear that future decisions would depend on incoming data. A weaker labour market or inflation moving closer to the Fed’s 2% target could still lead to cuts, he said.

Since the Fed’s last meeting in December, inflation risks have eased and concerns about job losses have declined, though both remain present. “We think our policy is in a good place,” Powell said.

Two officials dissent

Two senior policymakers disagreed with the decision. Governors Christopher Waller and Stephen Miran voted for a quarter-point rate cut. Waller is seen as a possible successor to Powell, whose term as chair ends in May.

Politics overshadowed the meeting

Much of Powell’s press conference focused on political pressure facing the central bank. He was asked about threats to the Fed’s independence and whether he plans to remain at the institution after his term ends.

The questions followed reports that the Trump administration recently opened a criminal investigation into Powell.

President Donald Trump has repeatedly criticised the Fed for not cutting rates more aggressively. Powell declined to comment further on the investigation but offered advice for his successor. “Don’t get pulled into elected politics,” he said, adding that accountability to Congress remains essential.

Inflation is still above the target

In its policy statement, the Fed said inflation remains “somewhat elevated,” while the job market shows signs of stabilising. The central bank removed language that previously warned of rising risks to employment. This suggested reduced concern about a sharp economic slowdown.

Job gains remain modest, but officials see the labour market as broadly balanced.
The unemployment rate fell to 4.4% in December.

Markets react

U.S. stock markets edged lower after the announcement and closed mostly flat. The 10-year Treasury yield rose to about 4.25%, while the two-year yield increased to around 3.58%.

Traders now expect the next rate cut to come at the Fed’s June 16–17 meeting.

Divisions remain inside the Fed

The decision keeps the Fed’s easing cycle on pause after three rate cuts in late 2025. Internal divisions remain, with some officials focused on inflation risks and others concerned about slowing growth and higher unemployment.

Those differences are likely to shape policy debates in the coming months. President Trump is expected to name Powell’s replacement soon. The new chair is set to lead the Fed’s June meeting.