U.S. FOMC Meeting (January 27-28, 2026)

Fed moves back to the sidelines, following three "risk management" cuts

• The Federal Open Market Committee (FOMC) held the policy rate fixed at the target range of 3.5%-3.75%. The move comes after three consecutive quarter-point "risk management" cuts at the past three meetings.
• The FOMC's press release struck a relatively balanced tone. Importantly, the prior reference to "the downside risks to employment having increased" was removed – suggesting the Committee no longer feels the need for further risk management cuts. The characterization of the labor market largely reflects a "mark-to-market" with job gains now described as "remaining low" (as opposed to "having slowed") and the unemployment as "showing some signs of stabilizing" (as opposed to "has moved up since earlier this year").
• Inflation is still viewed as "somewhat elevated", but the Committee dropped the prior reference of "has moved up since earlier in the year", reflecting more recent readings, which came in on the cooler side. 
• The Committee also upgraded its assessment of recent economic activity to "solid" from "moderate".  
• Ten of the twelve Committee members voted in favor of today's decision. Stephen Miran and Christopher Waller both dissented in favor of another quarter-point cut.

Key Implications

• Today's decision was widely expected. With the risk management cuts now in the rearview mirror and the policy rate nearing a more neutral setting, the FOMC is content to take a pause and better assess how last year's easing filters through to the broader economy. 
• The changes in today's statement suggest there's now a higher bar for further rate cuts – and rightfully so. Not only has the labor market shown some signs of stabilizing in recent months, but economic activity also appears to have ended last year on a more solid footing. This suggests a stronger growth impulse coming into 2026, which is likely to be further amplified by fiscal stimulus included in the One Big Beautiful Bill. Absent an unexpected deterioration in the labor market, we think that the FOMC will remain on the sidelines until there's more visible progress towards the Fed's 2% inflation target, which is unlikely to come until later this year. 

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