The Federal Reserve held the target range for the federal funds rate at 3.50%–3.75% on January 28, 2026. The decision was not unanimous: two members dissented in favor of a 25bp cut. The combination is the signal: policy is steady, but internal debate is widening as inflation progress competes with growth and labor-market cooling.
Key Points (From The Statement)
- Rates unchanged: target range maintained at 3.50%–3.75%.
- Vote: 10–2; dissenters preferred a 25bp reduction.
- Mandate framing: activity “expanding at a solid pace,” labor conditions stable, inflation “somewhat elevated.”
- Balance sheet: continued reduction in holdings of Treasuries and agency/MBS assets.
- Forward guidance: meeting-by-meeting, conditional on the data and the evolving balance of risks.
Westbridge Read-Through
The core signal is not the hold; it is the conditionality. A split vote increases the probability of a faster pivot if inflation breaks lower, but it also increases the risk of policy error if inflation re-accelerates through shelter, services, or wages. For positioning, that argues for avoiding “one-way” exposure to a single policy path.
In a conditional regime, the most valuable information is the marginal change in three inputs: (1) services inflation, (2) labor-market slack, and (3) financial conditions. If two of the three move in the easing direction, the path of least resistance is lower rates and a weaker USD impulse. If only one moves, expect range trading and sudden repricing.
Signals & Watchlist
- Services inflation: shelter and non-housing services are the pivot variables.
- Labor cooling: unemployment drift, hours worked, and wage growth, not just headline payrolls.
- Credit conditions: spreads and loan standards often tighten before growth data weakens.
- Communication risk: any shift in “balance of risks” language tends to lead the curve.