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Internal differences escalate, Trump's pressure is ineffective, and the next step to cut interest rates is unclear?
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Hello everyone, today XM Forex will bring you "[XM Group]: Internal differences have escalated, Trump's pressure is ineffective, and the next interest rate cut signal is ambiguous?". Hope this helps you! The original content is as follows:
The Federal Reserve decided to maintain its benchmark interest rate unchanged at its policy meeting on January 28, 2026. This decision reflects the U.S. central bank’s prudent assessment of the current economic situation. Chairman Jerome Powell emphasized after the meeting that economic growth prospects have significantly improved, and inflation and employment risks have weakened, but inflation levels are still high and the job market is showing signs of stabilization. This policy stance does not indicate an immediate urgency to further cut interest rates, but instead emphasizes that subsequent adjustments will be determined based on future data and economic outlook. Overall, the meeting highlighted the Fed's cautious attitude in balancing inflation control and economic growth support, providing the market with a relatively stable expected signal.
Core decisions of the Federal Reserve’s policy meeting
The Federal Reserve’s Federal Open Market www.xmtraders.committee voted 10:2 to maintain interest rates unchanged during the two-day meeting. The decision has broad internal support, with Chairman Powell saying the Fed is now well-positioned to flexibly assess whether it needs to adjust policy in the future.
He specifically pointed out that the strong performance of the economy once again exceeded expectations, which provides a solid foundation for maintaining the status quo. Powell further explained that various economic www.xmtraders.combinations could prompt the Fed to take action, such as a weakening labor market or inflation falling back to its 2% target. Since the last December meeting, when interest rates were cut for the third consecutive time, upward risks to inflation and downside risks to employment have weakened significantly, but these risks have not www.xmtraders.completely disappeared.
The Fed's policy statement emphasized that the magnitude and timing of additional interest rate adjustments will depend on new data and the economic outlook, which reflects the central bank's insistence on data-driven decision-making.
In the newsAt the press conference, Powell also responded to questions about the Fed’s independence and his personal tenure. He declined to www.xmtraders.comment further on an earlier criminal investigation into him by the Trump administration, but stressed that the investigation was aimed at pressuring the central bank to cut interest rates in line with the president's preferences. At the same time, Powell made suggestions for his successors, admonishing not to get involved in elected politics and emphasizing the need to be accountable to Congress to maintain the central bank's oversight mechanism. The remarks underscored the Fed's principle of independence in the face of political pressure.
Dynamic Assessment of Inflation and the Job Market
The Federal Reserve pointed out in a statement that inflation levels are still somewhat high, which has become the main consideration in maintaining interest rates unchanged. Despite solid economic growth, persistent inflation risks have prompted central banks to remain vigilant.
In terms of the job market, the Federal Reserve has observed some signs of stabilization, and there are also signals of continued cooling. The policy statement removed previous language about rising downside risks to employment, a sign that policymakers' concerns about a rapid decline in the labor market are easing. Although employment growth is still low, the overall trend is balanced, which is consistent with the slowdown in the number of job seekers caused by the Trump administration's stricter immigration policies. The unemployment rate fell to 4.4% in December, further supporting this assessment.
Ahead of this week's meeting, Fed officials generally described the job market as roughly balanced. The shift reflects positive changes in economic data, such as improving economic growth and waning risks. In his speech, Powell reiterated that the Fed's policy is in a good position to deal with potential challenges. This analysis shows that inflation rather than unemployment has become the current primary concern of the Federal Reserve, marking a subtle shift in policy focus from stimulating growth to controlling prices.
Disagreements within the Federal Reserve and political background
Although the overall decision-making has received majority support, there are still obvious differences within the Federal Reserve. Governor Christopher Waller, a potential contender to succeed Powell, joined White House economic adviser Stephen Millan, who is on leave, in dissenting votes, advocating for a quarter-percentage point rate cut.
This difference was revealed at the last meeting in December, when 3 of the 12 voting members dissented, including 1 in favor of a larger rate cut and 2 in favor of no rate cut. Recent economic data have not significantly changed the views of these officials, and there continues to be a conflict of opinion between those who are worried that inflation will not return to the 2% target and those who are worried about rising unemployment.
Political factors further exacerbated this divide. The Fed's current easing cycle started at the end of the Biden administration and was paused for about nine months after Trump entered the White House for the second time. After successive interest rate cuts at the last three meetings in 2025, this hold marks a temporary pause in the cycle. Trump has repeatedly criticized the Fed, accusing Powell of failing to deliver significant interest rate cuts to stimulate the economy. With Powell's term ending in May, Trump is about to announce his successor, with the new chairman expected to take office at the June meeting. This backdrop adds uncertainty to Fed policy and highlights the potential threat of political interference to central bank independence.Threat.
Market reaction and analysts’ in-depth interpretation
After the release of the policy statement, the major U.S. stock indexes fell slightly, but ended basically unchanged. The S&P 500 edged up 0.1%, indicating that the market's digestion of the Fed's decision was relatively stable. In the bond market, the 10-year Treasury bond yield rose to approximately 4.25%, with the increase narrowing to 2.6 basis points; the two-year Treasury bond yield rose to approximately 3.58%. In the foreign exchange market, the U.S. dollar index pared gains and closed up 0.6% at 96.45. Trends in interest rate futures indicate that the probability of the next Fed rate cut at the June 16-17 meeting is about 60%.
Analysts interpreted this decision from multiple perspectives. Omer Sharif, president of InflationInsights, noted that the statement was more optimistic about the labor market and shifted the balance of risks from "downside risks" to "balanced," which reflects the www.xmtraders.committee's confidence.
Chris Grisanti, chief market strategist at Mai Capital Management, believes that this statement and press conference are clearly hawkish, with economic activity upgraded from "moderate" to "sound", the employment situation stabilizing, and high inflation becoming the primary concern. He predicted that there may be no interest rate cuts in 2026, which is in contrast to market expectations.
Mesirow Currency Management senior investment strategist Uto Shinohara analyzed that the U.S. dollar’s response to the decision was muted, and the stabilization of the labor market reduced the urgency of easing, but the differences between the Fed’s easing cycle and other central banks made the U.S. dollar vulnerable, especially in the context of intensifying geopolitical uncertainty.
MonexUSA trading director Juan Perez emphasized that amid market uncertainty, the Federal Reserve's caution will help ease pressure on the dollar, but the path is still difficult to predict and may trigger market resistance.
To sum up, the Fed’s decision to keep interest rates unchanged not only reflects its www.xmtraders.comprehensive assessment of high inflation and stable employment, but also reveals the www.xmtraders.complex intertwining of internal differences and political pressure. Although this hawkish signal did not immediately trigger severe market fluctuations, it left room for future policy adjustments. As economic data further evolves and the appointment of a successor approaches, the Fed's path will continue to affect the global financial landscape, and investors need to pay close attention to potential risks and opportunities.
The above content is all about "[XM Group]: Internal differences escalate, Trump's pressure is ineffective, and the next interest rate cut signal is ambiguous?" It was carefully www.xmtraders.compiled and edited by the XM foreign exchange editor. I hope it will be helpful to your trading! Thanks for the support!
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