The Federal Reserve of the United States held its benchmark interest rate unchanged at its first policy meeting of the year, following three straight reductions.
The Fed approved holding rates steady by a 10-2 vote, with governors Stephen Miran and Christopher Waller favoring a cut of 25 basis points. The decision keeps the benchmark rate at 3.5% to 3.75% as policymakers try to balance stubborn inflation and signs of a cooling job market.
Federal Reserve Bank Chairman Jerome Powell said the risks of weaker employment and higher inflation have eased a bit. He added that there was broad support among the Federal Open Market Committee for holding rates steady and that officials don’t want to lay out a specific “test” for when they might cut again.
Twelve of the 19 officials projected in December that at least one more rate cut would be appropriate this year. But that move was far from unanimous: Two officials opposed any reduction and several others backed the cut only with reservations, according to the December meeting minutes.
Recent economic readings have eased some of the debate over the sharp slowdown in hiring and the direction of inflation. Underlying consumer prices rose 2.6% in the year through December — a bit softer than expected. On the jobs front, unemployment, which climbed to a four-year high of 4.5% in November, has since edged back down. Other labor indicators also suggest there’s no wave of layoffs looming, even if hiring remains on the slow side.
Officials will also be watching early-year inflation data because in the first few months of the year, many companies reset their prices. If those resets are unusually large, it could signal that inflation is picking back up. If it's modest, it could suggest inflation pressures are easing.
Powell said "a lot of" the tariff pass-through to inflation has now happened. "We do think tariffs are likely to move through and be a one-time" increase in prices.
Experts react to Fed's rate hold
Real estate experts widely anticipated Wednesday's Fed decision and believe the rate of volatility is over.
"While rate reductions are always constructive, the series of cuts in late 2025 has already helped reenergize the real estate cycle, supporting higher valuations and increased transaction volume," Allan Swaringen, managing director at LaSalle Investment Management and president & CEO of JLL Income Property Trust, said in a statement.
This meeting offered Powell a moment to turn the page on the political and legal noise engulfing the Fed and refocus on the central bank’s task of controlling inflation and maximizing employment.
Powell said it's a tricky moment to read the labor market because both demand for workers has softened, while the supply of workers has slipped amid lower immigration.
"Essentially, the economy has once again surprised us with its strength," Powell said.
The chairman added that the central bank is "not on a preset course" and will be making "decisions on a meeting-by-meeting basis."
Christine Cooper, the chief U.S. economist for CoStar Group, said the Fed has shifted to a “wait-and-see” mode as "it balances the risks posed by its two mandates: maximum employment and price stability. The economic outlook has improved since the policymaking committee’s last meeting, suggesting that additional rate cuts are not needed at this point. However, several indicators continue to signal a weakening labor market, which would call for further rate cuts."
Meanwhile, the Bank of Canada held its overnight interest rate steady at 2.25% on Wednesday, as economists widely expected. By comparison, the Bank of England cut its rate from 4% to 3.75% at its December meeting.
Shifting conditions across commercial real estate
Professionals in the commercial real estate industry say these dynamics are already reshaping the market.
"We are seeing strong momentum across both investment and lending activity, fueled by attractive leverage conditions and meaningful pent-up demand," Swaringen said. "With rates now on more stable footing, we expect measured and consistent market improvement to continue through 2026.”
Still, experts acknowledge that investors remain sensitive about borrowing costs: "While investors generally view today’s rate levels as more manageable than in recent quarters, further easing would certainly be welcomed," Marion Jones, principal and executive managing director of U.S. capital markets at Avison Young, said in a statement.
Implications for housing
Mortgage rates are dropping overall. They are hovering near their lowest points in over three years, though they’ve picked up since last week.
Freddie Mac reported that the average 30-year fixed-rate mortgage was 6.09% as of Jan. 22 — up three basis points from last week but still well below the 6.96% level seen at this time last year.
And with the Fed leaving rates unchanged in January, borrowers shouldn’t expect an immediate shift in mortgage costs.
It’s worth noting that the Fed doesn’t set mortgage rates. The central bank decides on the federal funds rate — the short-term rate banks charge each other. When the Fed signals a change in that rate, it can indirectly influence longer-term rates, such as mortgage rates.
Mortgage rates, however, are largely driven by the 10-year Treasury yield, which responds to global demand for U.S. bonds, inflation expectations and the overall economic outlook, not the Fed’s decisions.
The 10-year Treasury yield edged higher after the Fed's rate decision, to about 4.27%. Against this backdrop, some experts argue that the housing market isn’t waiting for the Fed at all.
“Mortgage interest rates have already declined almost a full percentage point over the past year, and income growth has made homebuying more affordable, so the homes market does not depend on any further cuts by the Fed,” Brad Case, chief residential economist for Homes.com, the residential affiliate of CoStar, said ahead of the rate announcement.
“I expect to see the number of home sales increase over the next several months regardless of the Fed's rate decision.”
Fed’s leadership in flux
The Justice Department opened a criminal investigation into Powell, which came into light after Powell disclosed it in a video message characterizing the investigation as politically motivated pressure to drive interest rates lower.
Powell said during the press conference that he would neither expand on nor repeat his earlier statement on the Justice Department probe. "I have nothing further for you on that today," Powell said when asked whether the Fed has responded to the subpoenas.
Last week, the Supreme Court heard arguments on the limits of presidential power over the Federal Reserve, including whether Trump can dismiss Governor Lisa Cook. This claim was met with skepticism from several justices.
Asked about attending the Supreme Court case, Powell said “that case perhaps is the most important case" to the Fed. Citing Paul Volcker as having gone to a Supreme Court case when he was Fed chair, Powell said, "I thought it was an appropriate thing, so that's why I did it."
According to Trump’s advisers, an announcement about naming Powell’s potential successor is expected soon.
Among the top candidates for the role are National Economic Council Director Kevin Hassett, Waller, former Fed Governor Kevin Warsh and Rick Rieder, the chief investment officer for global fixed income at BlackRock.
However, Waller's dissent is likely a strategic nod to his Fed chair candidacy, according to Michael Brown of Pepperstone Group, saying it “could keep Waller’s slim hopes of succeeding Chair Powell alive for now.”
Powell’s term concludes in May, so he’ll still oversee the March and April rate‑setting meetings. He can, however, legally remain on the policy committee because his 14‑year term as a governor runs through Jan. 31, 2028.
Tensions with the White House have escalated, and in Davos, President Trump suggested Powell would not enjoy his tenure if he chose to remain on the Federal Reserve’s Board of Governors after his term as chair expires.
Asked whether he’ll stay on the board after his term as chair ends, Powell declined to answer. He also said he plans to praise the Fed staff to whoever succeeds him. "There isn't a better cadre of professionals more dedicated to the public well-being than those who work for the Fed."
Powell stressed that the Fed's independence has served the people. "The reason is that monetary policy can be used through the election cycle to affect the economy in a way that will be politically worthwhile."
He added that the central bank's credibility would be hard to restore if it were lost. And he's confident the Fed can maintain its independence: "Yes, I am committed to that and so are my colleagues."