Fed Holds Rates Steady, Signals Fewer Cuts in 2026 Amid Stubborn Inflation

The kept its benchmark interest rate unchanged at a range of on Tuesday, signaling that the fight against inflation isn't over and dashing market hopes for early rate cuts next year.

In a statement following its two-day meeting on December 22, the acknowledged that economic activity has been expanding at a moderate pace with strong job gains. However, the central bank stressed that inflation remains elevated and it is "highly attentive to inflation risks."

A Hawkish Pause: Powell Pushes Back on Easing

Chair delivered a clear message during his press conference: don't expect rate cuts anytime soon. "We are not yet confident that inflation is on a sustainable path back to our objective," said. "We will need to see more good data before we consider cutting rates."

The Fed's hawkish stance was reinforced by its updated "dot plot," or Summary of Economic Projections. The median forecast for the federal funds rate at the end of rose to , up significantly from the projected in September. This implies policymakers now expect fewer rate cuts next year than previously anticipated.

Market Reaction and Investor Takeaway

The market's reaction to the renewed 'higher-for-longer' message was swift and negative. The fell , and the tech-heavy dropped . In the bond market, the yield on the policy-sensitive jumped to , while the U.S. dollar strengthened.