When It Is In January And What To Expect on Interest Rates

The Federal Reserve’s policy committee is scheduled to meet next on Jan. 27 and 28, and officials are expected to hold the central bank’s key interest rate steady after a series of cuts in recent months.

What To Expect From The January Meeting

The Federal Open Market Committee will meet to consider whether to cut the federal funds rate from its current range of 3.5% to 3.75%. The Fed cut its interest rate by a quarter of a percentage point at each of the previous three meetings in an effort to prevent the recent job market slowdown from turning into a serious increase in unemployment.

Fed officials have been divided about whether to cut interest rates to help the job market or keep them high to fight inflation. The Fed’s dual mandate from Congress requires it to keep inflation low and employment high, and both have been headed in the wrong direction in recent months, creating a dilemma for the Fed. Lower borrowing costs could help encourage hiring, but could risk stoking inflation.

“A very large number of participants agree that risks are to the upside for unemployment and to the upside for inflation,” Fed Chair Jerome Powell said after the December meeting of the policy committee. “So what do you do? You’ve got one tool. You can’t do two things at once. So at what pace do you move? It’s a very challenging situation.”

After three consecutive cuts, financial markets now expect policymakers to hold interest rates steady to see what direction the economy takes, and which problem emerges as the more serious risk. As of Monday, traders were pricing in an 80% chance the Fed would hold steady, according to the CME Group’s FedWatch tool, which forecasts rate movements based on fed funds futures trading data.

The fed funds rate influences borrowing costs on short-term loans such as credit cards and car loans, and indirectly affects rates for mortgages and other longer-term credit. Easier money generally encourages spending and boosts the economy, while higher interest rates reduce demand and push down inflation.

Inflation Hawks Want To Keep Rates Steady

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said the Fed should hold rates steady instead of cutting for at least several months.

“Inflation has been above our target for nearly five years,” Hammack said on a Wall Street Journal podcast Sunday. “And I think it’s really important for us to try to bring that down … My base case that we can stay here for some period of time until we get clearer evidence that either inflation is coming back down to target or the employment side is weakening more materially.”

Hammack is slated to be a voting member of the Fed’s 12-member policy committee in 2026.

Inflation has not run at the Fed’s goal of a 2% annual rate since 2021 and has accelerated this year by most measures since President Donald Trump began imposing tariffs last spring in an effort to boost American manufacturing. A report last week showed that inflation slowed down sharply in November, but Hammack said she was skeptical that was really the case, since the data could have been distorted by the government shutdown in October and November.

Dovish Faction Wants To Slash Borrowing Costs

However, the faltering job market is just as concerning to Fed officials. Many employers have held back on hiring because of uncertainty about tariffs, slowing down the job market this year. On top of that, Trump’s crackdown on immigration has held back hiring in some industries. The unemployment rate has risen steadily since June and reached a four-year high in November.

Several Fed officials have advocated for steeper rate cuts, especially Stephen Miran, who was appointed to the Fed by Trump in September.

“If we don’t adjust policy down, then I think that we do run risks” of a recession, Miran said Monday on Bloomberg TV.