Kolkata: In line with market expectations, the US Federal Reserve has kept interest rates unaltered in the first meeting of the FOMC (Federal Open Market Committee) in 2026. The rates are between 3.5% and 3.75% though the decision was not unanimous with two members on the committee voting in favour of shaving 25 basis points. Significantly, chairman Jerome Powell, who has faced severe criticism and opposition from US president Donald Trump for not slashing interest rates, defended the independence of the central bank.
As expected, the FOMC took into consideration several economic indicators, such as inflation trends and labour market data, before finalising the decision at the end of the two-day meeting.
Inflation elevated, pause to rate cutting
Significantly, this is the first time since July 2025 that the US Federal Reserve has not slashed interest rates. Late in 2025, the FOMC decided to slash 75 basis points from its key policy rates. The Federal Reserve’s policy statement gave no indication of when borrowing costs might ease again. The Fed said that the “extent and timing of additional adjustments” will depend on the data and the economic outlook. While noting that job growth has been slow, the US Fed said the unemployment rate showed signs of stabilizing. It fell to 4.4% in December.
That the inflation rates was somewhat elevated was quite apparent in the policy statement. It signalled that the policymakers are still not fully convinced that price pressures are fully under control despite the rate cuts last year.
Dollar strength
A cut in the interest rate would have resulted in a fall in the strength of the US Dollar. It would have also meant some funds flowing into the emerging markets. Though the FIIs have been pulling out money from the Indian equities, it would perhaps have a sobering effect on the outflow. But no cut in the interest rate would not mean any investment immediately flowing out of the dollar due to the its losing strength on that count.
Conversely, a rise in interest rates immediately prompts some investors to pull dollars out of Indian stock markets and invest in dollar-denominated assets. That will not be happening this time either.
US president Donald Trump, being a career businessman, wants the Fed to aggressively cut rates and has constantly attacked Jerome Powell for not doing so. Trump began expressing his didpleasure with the Fed’s decisions soon after he assumed charge in Jan 2025.