Despite pressure from Trump increasing on the Fed to cut rates more aggressively, market expectations were that the FOMC decision would be to hold at the meeting today. And that’s exactly was what they duly did, voting 10-2, to keep Fed funds in the range of 3.5-3.75%, until the next meeting at least. That’s after three consecutive cuts towards the end of last year.
For the first time in eight years, the Fed will have a new chairman when Powell’s term ends in May. As the Fed met today, there were hints that the White House might announce his replacement as soon as this week. At this point, Rick Reider, chief investment officer for global fixed income at BlackRock (BLK), appears to have gained momentum as Powell’s possible replacement. “Rieder is seen by some in Washington as having the smoothest path to confirmation in the Senate,” said Michael Townsend, managing director of legislative and regulatory affairs at Schwab. “Kevin Warsh, a former Fed governor, is the other candidate who appears to be under serious consideration.” Rieder’s views on lower interest rates and housing affordability align with President Trump’s priorities, Barron’s reported this week. In his appearances on financial news networks, Rieder has said that the Fed needs to find new ways of looking at the economy that account for technology-related productivity gains. Of course, Rieder or any other nominee needs Senate approval, and Fed independence concerns could dominate the process.
But what are investment strategists making of this latest Fed decision?
Ed Hutchings, Head of Rates, Aviva Investors said: “Markets have just come through this week’s FOMC meeting with policy left unchanged, as expected. The real signal, however, lay less in the decision itself and more in how confidently the Committee defended that pause, and in how politically focused questions were handled — an area that clearly attracted growing attention. With inflation still uncomfortably above target yet labour markets no longer clearly deteriorating, the Fed appears to have earned the luxury of patience — a position not all central banks can yet claim.
“For UK rates markets, the implications are subtle but important. A steady Fed helps underpin a firm dollar, tightening global financial conditions at the margin and constraining how far and how fast others, including the Bank of England, can diverge. In that context, near‑term SONIA remains anchored less by domestic data and more by a globally synchronised pause. Where things become more interesting is further out the curve. SONIA forwards continue to imply a relatively orderly and shallow UK easing cycle, but that calm may understate the risk of renewed divergence as investors weigh weaker UK growth dynamics against persistent imported inflation pressures.
“The result is a curve that looks stable at the front end, but increasingly vulnerable in the belly. The bigger risk for SONIA may not be an early rate cut, but complacency about how insulated the UK really is from global rate gravity. As we move closer to the local May elections, the political backdrop is also likely to take on greater prominence. With tensions already building, UK assets may prove increasingly sensitive to political spillovers alongside global rate dynamics.”
Richard Carter, head of fixed interest research at Quilter Cheviot said: “Following several cuts last year and the delayed nature of their impact on the real economy, it makes sense that the Federal Reserve has chosen to hold rates at its first meeting of 2026. This is likely to be a pivotal year for the Fed and its future independence, but for now it is happy to defy the President and keep a lid on future rate cuts.
“The US economy is running hot at the moment, and Trump is likely to keep it that way as we head into the midterm elections towards the end of this year. The inflation outlook, consequently, is worsening and as such the next cut from the Fed looks to be a couple of meetings away at the earliest.
“However, markets remain nervous about the potential for erosion around the Fed’s independence. Trump will soon nominate a successor to Jerome Powell, and a source of friction that has been in place preventing rate cuts will soon be removed. Should Donald Trump get his way and see rate cuts delivered going into November then there is the potential for inflation to spike once again.
“This is already hitting the dollar and should events play out to Trump’s liking, then we could easily see fresh bouts of volatility within bond markets as tax cuts are delivered, spending goes higher and inflation returns as a result. It is likely to be a very eventful year for the Fed, despite today’s business as usual approach.”
Jack McIntyre, Portfolio Manager at Brandywine Global, part of Franklin Templeton said:
“In a word, today’s FOMC was boring. Which is not a bad thing. There were no additional comments on the Fed’s independence or even the direction of the US dollar. The tone around the economy was skewed toward hawkish patience—as it should be. The economy is on a solid expansionary path. The Fed has lowered policy rates by 175 basis points this cycle, and we are entering a period of additional fiscal stimulus. Inflation is on the sticky side while budget deficits remain elevated and net worth continues to rise to new records.
“Given this backdrop, the Fed and the market are not in a hurry to see lower policy rates until at least the summer. Expect the yield curve to flatten as longer maturity bonds outperform. Meanwhile, we are entering a period comparable to the 1970s when the White House had more influence on the Fed chair. Fed Governor Christopher Waller’s dissention, saying the Fed should have lowered interest rates, keeps him in the running to be the next chair. Under the next Fed leader, expect the central bank to take on a more activist role, including pulling more levers to impact the economy and markets—not just setting policy rates.”
John Wyn-Evans, Head of Market Analysis at Rathbones, said: “After weeks of headlines about the Federal Reserve’s independence, possible criminal charges against Jerome Powell and speculation over his successor, it was almost refreshing to see it return to the business of setting monetary policy. As expected, the Fed left the Federal Funds rate unchanged at 3.50% to 3.75%. Two members voted for a quarter‑point cut. One, Stephen Miran, is widely seen as aligned with President Trump’s lower‑rates agenda. The other, Chris Waller, may be positioning himself for the soon‑to‑be‑vacant chair.
“As anticipated, the real interest lay in the statement and Powell’s comments. The Fed discouraged any idea of a preset path lower for rates, stressing decisions will be made meeting‑by‑meeting. That might disappoint the President but should calm fears—at least for now—of an overheating economy. Even so, there was no suggestion rates might need to rise again.
“The statement upgraded economic activity to ‘solid’ from ‘moderate’ and noted a ‘stabilising’ labour market. References to ‘downside risks’ were removed. That implies no urgency on the ‘maximum employment’ side of the mandate. With inflation ‘somewhat elevated’, the focus shifts to maintaining price stability. The ghost of Arthur Burns and the 1970s policy error clearly still lingers.
“Current inflation pressures are seen largely as tariff‑driven, with around 96% of the burden falling on US consumers, according to the Kiel Institute. Absent further increases, their effect should be one‑off. But markets fear the President may want to run the economy hot ahead of the midterms, with fiscal stimulus from the One Big Beautiful Bill Act and talk of more cheques.
“The market’s concerns can be seen in the rise of the 2-year inflation breakeven rate, which is the expected rate of inflation that can be inferred from inflation-linked bond prices. That has risen from 2.3% to 2.75% since the start of the year. The 10-year rate has risen more moderately from 2.25% to 2.35%, suggesting that the market is not yet fearful that long-term inflation expectations are becoming unanchored. But the strong performance of, for example, gold and silver, as well as other metals, betrays investors’ worries and the desire to find portfolio hedges against potential currency debasement as a result of higher inflation.
“The dollar’s decline has stabilised slightly after soothing Treasury comments, but its weakness is a headwind for sterling‑based investors. Positively, it may dampen commodity and import costs, giving the Bank of England more latitude to cut rates, though not before July.”
Richard Flynn, Managing Director at Charles Schwab UK said: “In a strictly data-driven decision, the Federal Reserve has opted to hold interest rates unchanged at 3.5-3.75% despite mounting political pressure to issue a cut.
“With inflation easing to 2.7% in December and edging closer to the Fed’s 2% target, price pressures are clearly moderating. However, conditions have not become overly restrictive, particularly given the resilience of key economic indicators. The unemployment rate has stabilised at 4.4%, reflecting a cooling in labour demand alongside slower labour supply.
“This balance has given the Fed sufficient confidence to maintain its current stance. Barring a material shift in inflation or labour market dynamics, the central bank is likely to continue with its data-driven approach through at least May 2026.
“These are, however, extraordinary times for US monetary policy. A growing public tussle between monetary independence and fiscal authority has brought the Fed’s institutional credibility into sharper focus. That independence remains a cornerstone of global confidence in the dollar, US Treasuries, and American capital markets more broadly.
“For investors, attention is now shifting beyond inflation prints and employment data towards the future direction of the central bank itself, particularly with Chair Powell’s term set to conclude on 15 May, 2026. The durability of the Fed’s independence may prove just as important as the path of interest rates in shaping market confidence in the months ahead.”
Daniele Antonucci, Chief Investment Officer at Quintet Private Bank (parent of Brown Shipley) said: “That the Fed didn’t cut rates was widely expected, given a fine balance between downside risks to the labour market versus a still somewhat elevated level of inflation. We don’t expect any further rate reduction under Fed Chair Powell and see the central bank on hold over the next couple of monetary policy meetings.
“The big question for markets is who will chair the Federal Open Market Committee after Powell and what impact that will have on the direction of policy.
“While geopolitical risks persist, we think the fundamental macro backdrop is turning more supportive. Cyclical and structural forces, from monetary and fiscal stimulus to AI investment and a more multi-polar world, are reshaping economies and markets.
“We’ve also sold some of our global investment-grade corporate bonds as valuations are becoming more demanding.”
Isaac Stell, Investment Manager at Wealth Club said: “As widely expected, the Federal Reserve has held interest rates at 3.50-3.75%, putting the brakes on its easing cycle following three consecutive cuts that rounded out 2025.
“In this latest and perhaps most politically charged decision, the Fed has held its ground despite increasingly forceful attempts by the White House to influence monetary policy. It is widely known that the President wants and expects lower rates, a stance made clear through persistent commentary throughout 2025. Any hope within the Fed that 2026 might bring calmer waters was dispelled when the administration escalated matters with subpoenas threatening criminal indictment.
“With previous decision to cut rates focused firmly on a deteriorating jobs market, data signalling some stabilisation in the unemployment rate gave the Fed confidence to hold rates steady today. The decision to hold also comes as the rate of inflation, although showing some signs of softening, remains well above the central bank’s 2% target. Further upsides to inflation are likely high on the Fed’s radar given the implications of a declining dollar which has the effect of increasing the costs of imports.”
