The Federal Reserve decided to maintain interest rates at 3.50%-3.75%, having already cut by 1.75 percentage points since September 2024. Despite the reduction, rates remain higher than the pre-pandemic average of 1.7%. The Fed is expected to cut rates by an additional 0.5 points this year and then keep them steady in 2027.

Recent economic data suggests a strong US economy, with improved growth expectations. Retail sales for September and October were robust, and AI is projected to drive significant capital expenditure in 2026. Chair Jerome Powell upgraded the pace of expansion to “solid” and noted an improved economic outlook.

Despite positive growth projections, labor market data shows ongoing weakness. Nonfarm payroll employment shrank at a 0.4% annualized pace, and the unemployment rate rose to 4.5% from 4.1% in early 2025. Powell highlighted the potential impact of a productivity boom and reduced labor supply on weak job growth amid overall economic strength.

As long as recession risks remain low and labor market slack doesn’t increase, the Fed is unlikely to rush further rate cuts. However, two more rate cuts are expected by the end of the year. Powell emphasized the importance of monitoring labor market data, which historically tends to be more reliable than GDP data in predicting economic trends.

Read more at Morningstar: The US Fed May Be on Pause, but It May Not Be Done Cutting Rates