FOMC Statement and Powell’s Press Conference Afterward – Currency Thoughts
FOMC Statement and Powell’s Press Conference Afterward
January 28, 2026
Changes made to the text of today’s statement and voting results at the meeting support today’s decision to to pause interest rate cutting after 25-basis point reductions at each of last year’s final three meetings. Stephen Miran, Trump’s temporary appointment to fulfill the governor ship vacancy after Adriana Kugler had resigned, cut his dissenting vote to a reduction of 25 bps from 50 basis points, which he had favored at the two preceding meetings. Miran is on record favoring a rather large cumulative rate cut in 2026. All of the incoming District Presidents with voting privileges in 2026 but not last year (Hammack, Kashkari, Logan and Paulson) joined the majority favoring no rate change today. Goolsbee, who had a vote in December in which he voted against the cut that the majority preferred, has continued to express concern about inflation in public remarks. Governor Waller is one of the finalists for the next Fed Chairman, so it is no surprise that he joined Miran in voting in favor of a 25-bp further rate reduction.
Describing the U.S. economy over the past seven weeks, the FOMC statement deleted the observation in December’s text that downside risks to employment had risen in recent months. The new text revises the characterization of the pace of U.S. economic activity to solid from moderate in the December statement. Unemployment is showing “signs of stabilization,” a characterization that suggests less concern about the months ahead than was the case in December.
At the press conference, Chairman Powell underscored that the upside risks of inflation have diminished but also been accompanied by downside risks to the labor market. He would say that either of these shifts had been greater than the other. The net effect is that the twin mandates that the Fed is trying to balance still are pulling in opposite directions, but the polarization is no longer as extreme. After 75 basis points of rate cuts at the previous three policy reviews on top of a full percentage point of rate reduction in the final three meetings of 2024, the target is now already hovering at the top of a range of policy neutrality. All this puts the Fed in a good position to assess the trends in the labor market and inflation and the impact of monetary stimulus already taken on those trends. Inflation, measured by the PCE price deflator of 3.0% in December was similar to a year earlier, but that stall mainly reflected the impact of tariffs on goods price, which is expected to run its course around the middle of this year. Service sector inflation, and the overall disinflation ought to remove, assuming that tariffs do not continuing to be ratcheted upward. The labor market story is one of low growth in labor demand being matched by low growth in labor supply, and unemployment stabilizing at a still pretty low level.
Powell deflected many questions probing for insights on his personal plans and the tensions between the central bank and the government, but he did espouse to one on why an independent monetary policy is so important. His answer mirrored what’s been said on this site as well. The preference for independent monetary policy isn’t something unique to the United States. For virtually all countries, many of which have histories that include both independence and times when government officials ran the show or slowly influenced decision, the results have very significantly pointed to better results on sustaining stable prices when policy is shielded from political influence. The temptation for politicians, who need to get reelected, to add excessive stimulus at such times is simply too great. This is what happened in the United States in the 1970’s, resulting in a big erosion of market credibility in Fed policy that then took decades to fully restore. The good news now is that in spite of the highly public efforts of politicians to coax Fed officials to lower interest faster and far more extensively, market-inferred measures of long-term U.S. inflation expectations remain well anchored in alignment with the 2% target.
Copyright 2026, Larry Greenberg. All rights reserved.
Tags: FOMC decision and Powell’s press conference
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