The Federal Reserve held interest rates steady Wednesday, pausing after a series of cuts to end last year.
At the conclusion of the Federal Open Market Meeting, the Fed announced it is maintaining the target rate of 3.5 to 3.75 percent. The pause ended a run of three straight interest rate cuts by the Fed, which had dropped rates by 75 basis points since September and 175 basis points since September 2024.
Federal Reserve Chairman Jerome Powell said the U.S. economy has started 2026 on a firm footing, though the expansion of the labor market has slowed and inflation remains above the 2 percent goal.
“While job gains have remained low, the unemployment rate has shown some signs of stabilization, and inflation remains somewhat elevated,” Powell said.
Unemployment remains at 4.4 percent, and the labor market has seen an average decline of jobs of 22,000 in the past few months, according to Powell.
“This reflects a decline in the growth of the labor force due to lower immigration and labor force participation, though labor demand has clearly softened, as well,” Powell said.
Inflation ended December at 2.9 percent, with core inflation, minus food and energy prices, at 3 percent. Powell hinted that the remaining inflation is attributed to tariffs on goods that are expected to move through the economy by the middle of the year.
“Most of the overrun in goods prices is from tariffs. That is good news, because if it weren’t from tariffs, it might mean it is from demand, and that is a hard problem to solve,” Powell said. “We do think tariffs are likely to move through, and be a one-time increase.”
The January Conference Board’s Consumer Confidence Index showed a decrease to its lowest level since 2014. Powell said the sentiment of similar surveys has not matched spending.
“The economy overall is on solid footing,” Powell said. “The consumer filling out the surveys sounds really negative, and then spending. There has been a disconnect for some time between the downbeat surveys and the reasonably good spending data.”
He added that some of the data from retailers show consumers are looking to economize and are changing their buying habits.
Automotive interest rates remain elevated. The latest Cox Automotive Dealertrack estimates show used auto loan rates are 13.54 percent, which is down from the 14.26 percent in December. New vehicle rates are 8.88 percent, a fall from the 9.52 percent at the end of 2025.
