Fed holds rates steady as Powell says tariffs are hitting prices

Two Federal Reserve governors, Christopher Waller and Stephen Miran, broke with the majority at the first policy meeting of 2026, voting for a quarter-point cut while the rest of the Federal Open Market Committee chose to pause and take stock of new data.

The Fed kept its benchmark federal funds target range unchanged at 3.50% to 3.75% on January 28 after delivering 75 basis points of cuts across the final three meetings of 2025. Chair Jerome Powell said the current stance gives policymakers room to watch whether inflation continues to cool without putting unnecessary stress on hiring. He pointed to steady consumer spending and investment linked to data centers and artificial intelligence as supports for growth.

Powell leaned against the idea of near-term tightening. He stressed that policy is set meeting by meeting, but said a rate hike is not the base case for what comes next, arguing that recent economic reports have not forced the Fed back into defensive mode.

Tariffs were a recurring theme. Powell said goods inflation has been lifted by tariff effects and suggested much of that pressure has already shown up in consumer prices. In practice, that points to US households paying a meaningful share of the cost rather than foreign countries facing the import duties. Powell said the Fed expects the tariff impulse to fade as it works through supply chains, and officials will watch closely to keep a one-time bump from turning into a lasting inflation problem.

Reporters also pressed Powell on politics and his own timeline, with his term as chair set to end in May. He declined to discuss whether he plans to remain at the Fed afterward and avoided commenting on potential successors. Powell also flagged the fiscal backdrop, saying the federal budget deficit is on an unsustainable path and that the sooner Washington starts dealing with it, the better.