Fed Pauses Rate Cuts, Maintaining 3.75% Range; Decision Split as Two Officials Advocate for Continued Cuts

By AI Insights

2026-02-04

The Federal Reserve (Fed) announced at its meeting this Wednesday (the 29th) that it will keep the federal funds rate target range unchanged at 3.50% to 3.75% (data shows the upper limit is 3.75%), pausing the aggressive easing pace seen since the fourth quarter of 2025. This decision aligns with current data observations, remaining flat from the 3.75% level in December last year. In its statement, the Fed noted that although inflation remains slightly above target, the pace of economic expansion is solid; therefore, adopting an "observation mode" is currently an appropriate strategy to assess the lagged effects of the cumulative 75 basis points (3 quarter-point cuts) of easing.

The most notable aspect of this meeting was the divergence of opinion within the FOMC. According to meeting minutes and foreign media reports, two officials, Governor Stephen Miran and Christopher Waller, cast dissenting votes, advocating for an immediate additional cut of 1 quarter-point (25bps). This reflects that concerns regarding the labor market among some policymakers have not completely dissipated. Regarding economic data, the US unemployment rate currently remains stable at around 4.4%, indicating that while the job market has cooled, it has not collapsed, and GDP growth rates better than expected have provided support for the "soft landing" narrative.

Institutional analysis points out that Fed Chair Jerome Powell emphasized during the post-meeting press conference that the US economy entered 2026 on "solid footing" and believes current interest rate levels can effectively balance the dual goals of inflation and employment. However, institutions like Trading Economics commented that this pause is primarily to buy time to observe data, not a restart of the tightening cycle. The market interprets this as a pivot following a "Hawkish Pause," or a precautionary measure to prevent a resurgence of inflation.

Looking ahead, interest rate policy is expected to remain unchanged in the short term (1-2 months), with the market generally anticipating a low probability of another rate cut at the March meeting. In the medium term (3-6 months), if inflation data (such as Core PCE) continues to decline and the unemployment rate does not rise significantly, market consensus expects the Fed could restart rate cuts as early as June 2026. However, if inflation demonstrates stickiness, the scenario implied by the Fed Dot Plot of "only one rate cut for the full year" may materialize, which would pose a correction risk to bond market pricing.

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