The Federal Reserve announced Wednesday that it will maintain the federal funds rate at its current level of 4.25-4.50%, marking the third consecutive meeting without a rate change.
Fed Chair Jerome Powell emphasized that the committee remains committed to its 2% inflation target but acknowledged that recent data shows "less progress than hoped" on bringing down core inflation.
Key Takeaways from the FOMC Statement
- Rates unchanged at 4.25-4.50% target range
- Inflation remains elevated above the 2% target
- Labor market conditions continue to show resilience
- Economic activity expanding at a moderate pace
"We are prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of our goals," Powell stated during the post-meeting press conference.
Market Reaction
Markets had widely anticipated the decision, with fed funds futures pricing in a 92% probability of rates remaining unchanged ahead of the announcement. The S&P 500 initially declined 0.3% following the statement before recovering to close flat on the day.
Treasury yields showed mixed movement, with the 2-year yield rising 4 basis points to 4.32% while the 10-year yield fell 2 basis points to 4.78%.
Inflation Outlook
The Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose 2.6% year-over-year in December, down from 2.8% in November but still above target.
Core PCE, which excludes volatile food and energy prices, remained stubbornly elevated at 2.9%, leading some economists to question whether the Fed can achieve its inflation target without additional policy tightening.
What This Means for Investors
The Fed's cautious stance suggests interest rates will remain elevated for longer than many investors had hoped. This environment typically favors:
- Short-duration fixed income
- Quality dividend-paying equities
- Real assets including precious metals
- Cash and money market funds yielding above 4%
The next FOMC meeting is scheduled for March 18-19, 2026, when the committee will release updated economic projections.