Fed Update | January 2026 FOMC Reaction

Edward von der Schmidt
6 days ago
2 min read

The Federal Reserve signaled that policy will remain in a holding pattern. Risks to employment and inflation appear to have lessened and the economic outlook has improved. A sharp deceleration in prices or rapid deterioration in labor markets could change the Fed's thinking and compel lowering rates sooner, but the FOMC believe they are "well-positioned" to consider the "extent and timing" of future policy adjustments. Given concerns surrounding the central bank's independence and Powell's successor as Chair, the Fed appears set to hold through April - if not longer.

28 JAN 2026

EDWARD VON DER SCHMIDT

Observations

The statement reflected an improved outlook and assessment of risks. The Committee upgraded economic activity from "moderate" to "solid" while both unemployment and inflation showed signs of leveling off.

References to downside risks to employment were removed and inflation was no longer seen as rising. The perceived balance of risks appears to have steadied amid diminished uncertainty.

Choosing to keep the "extent and timing" language reiterates the FOMC's commitment to a policy pause.

Two dissents in favor of a modest, 25bp cut (Miran, Waller) belied a broad consensus in favor of staying put. Note that the composition of voters has changed.

Chair Powell's prepared remarks emphasized some signs of stabilization in labor markets and favorable inflation trends. Reduced risks to both sides of the dual mandate have left the Fed comfortable with their current stance for the time being.

In the press conference, Powell indicated that a pause garnered broad support on the Committee. Economic resilience has surprised officials and made near-term rate cuts even less likely.

The Fed will remain attentive to the stability of labor markets and the trajectory of inflation. One-time price level effects from tariffs are expected to peak by the third quarter. A rapid cooling of inflation or employment conditions could spur Fed action sooner.

The improving outlook and considerations regarding the Fed's independence have set a higher bar for near-term easing. At this time, a policy rate cut appears unlikely before Powell's tenure as Chair is scheduled to end in May. As always, monetary policy is not on a preset course.

Note that the Fed reaffirmed its "Statement on Longer-Run Goals and Monetary Policy Strategy". You may find our guide to the statement here.

For meeting information and the consensus statement, refer to the Federal Reserve's website: https://www.federalreserve.gov/newsevents.htm