Fed Holds Rates as Window for Another Powell Cut Begins to Close
Jerome Powell has two more opportunities to adjust interest rates before his term as Federal Reserve chair ends — and he may not need them.
After the Fed kept borrowing costs on hold Wednesday, Powell talked up a “clear improvement” in the US outlook and said the job market shows signs of steadying. It signals a cautious optimism: Fed officials delivered three cuts last fall, and see nothing in the latest data to suggest more are needed to prop up the economy. Futures markets expect no shift in rates before June.
By then, Powell’s term as chair will have ended and a new one should be in place — likely opening another phase of President Donald Trump’s campaign for lower rates, which has upended the Fed over the past year. In a potential sign of what’s coming, the only two officials who voted for another cut this week were Governor Stephen Miran — on leave at the Fed from his post as a top Trump aide — and Governor Christopher Waller, one of four names on Trump’s shortlist of potential Powell successors.
“The window for a cut under a Powell-led Fed is essentially closed,” said Stephanie Roth, chief economist at Wolfe Research. “He is more optimistic about the labor market and economy overall than he was.”
The Federal Open Market Committee voted 10-2 Wednesday to hold the benchmark federal funds rate in a range of 3.5%-3.75%. Waller and Miran dissented in favor of a quarter-point reduction. Officials dropped language pointing to increased downside risks to employment that had appeared in the three previous statements.
Numbers published since the Fed’s December meeting point to accelerating growth, cooling inflation and steadying employment.
“The outlook for economic activity has improved, clearly improved since the last meeting, and that should matter for labor demand and for employment over time,” Powell told reporters Wednesday.
That upgraded assessment of the labor market is likely to hold expectations for a near-term rate cut at bay, despite escalating pressure from the Trump administration. Still, Powell was at pains not to overstate the improvement in the labor market. While it’s shown signs of stabilizing, “I wouldn’t go too far with that,” he said. 
Fed watchers said the mixed messaging suggests policymakers want to keep their options open.
