After cutting interest rates in the final three meetings of 2025, the Federal Reserve is expected to hold off on further changes to the fed funds rate on Wednesday.
In 2025, Fed officials were divided on whether to cut rates to boost the cooling labor market or keep rates elevated to continue to bring down inflation to the central bank’s targeted 2% level. A government shutdown that delayed and distorted government data on the economy only complicated matters.
But now, as Yahoo Finance’s Jennifer Schonberger previously reported, several prominent members of the Fed have stated that they view policy as being “in a good place.”
An unexpected decline in the unemployment rate put the Fed on course to keep rates steady. In December, the unemployment rate ticked down to 4.4% while the US added 50,000 jobs, according to Labor Department data.
Recent readings on inflation haven’t swayed the Fed from that course.
According to the latest Personal Consumption Expenditures Index, the Fed’s preferred measure, core inflation rose 2.8% year over year for a combined October and November period. The PCE report was a stale reading due to government shutdown delays. Core inflation measured by another index, the Consumer Price Index, remained at a sticky 2.6% in December.
While inflation remains higher than the central bank would like, it has only moderately grown in recent months. Plus, some officials, such as New York Fed president John Williams, believe inflation will continue to come down after the “one-off” effects of tariffs wear off.
With another government shutdown looming, the Fed could be entering another (partial) data fog. Still, markets will be listening to Fed Chair Powell’s speech closely for any changes to the economic outlook and policy path.