The Federal Reserve has decided to keep interest rates unchanged as the board remains divided

The United States Federal Reserve (Fed) announces will decide on interest rates on Wednesday. Markets widely expect the US central bank to leave its key interest rate unchanged at a range of 3.5%-3.75%. As this decision has been almost fully factored into the price, Fed Chair Jerome Powell’s comments at the post-meeting press conference may have an impact on the US dollar (USD).

This is demonstrated by the CME FedWatch Tool investors see about a 98% probability of maintaining the policy in January, and a valuation with a 15% chance of a 25 basis point (bp) rate cut in March.

According to a recent Reuters poll, All 100 economists surveyed expect the Fed to keep the federal funds rate unchanged in January. Moreover, 58% of respondents forecast no change in interest rates in the first quarter compared to the December poll, when they predicted at least one cut by March.

TD Securities analysts agree that the Fed will leave interest rates unchanged at 3.50%-3.75%, arguing that risk management cuts are over and policy is closer to neutral.

“While Powell will likely remain noncommittal on near-term rate cuts, we expect him to remind market participants that the median Fed official continues to look at interest rate cuts this year,” they added. “Overall, we expect a relatively neutral reaction at the FOMC meeting. While we continue to expect interest rates to decline later this year on the back of less prohibitive supply dynamics, strong demand and continued Fed rate cuts, there is a risk that the Fed will pause for longer in the near future.”

When will the Fed announce its interest rate decision and what impact may it have on EUR/USD?

The Fed is expected to announce this decision decision on interest rates and will publish a monetary policy statement at 19:00 GMT. It will happen Press conference of Fed Chairman Jerome Powell starting from 19:30 GMT.

The interest rate decision itself is unlikely to trigger a significant market reaction, but Powell’s tone could weigh on USD valuations and influence EUR/USD price action.

If Powell were to adopt an bullish tone on the inflation outlook and emphasize the need to support the labor market amid deteriorating conditions, investors could view it as a dovish signal. In this scenario, the US dollar may come under renewed selling pressure and allow EUR/USD to gain bullish momentum. On the other hand, the pair could head south if Powell sees that the central bank is not as concerned about the labor market situation as it was in behind schedule 2025 and that there is still a risk of rising inflation. As a result, investors may remain convinced that monetary policy will be maintained again in March, and the market position suggests that there is room for USD increases.

Market participants will also pay close attention to news reports regarding the nomination of the next Fed chairman. US President Donald Trump could take the opportunity to criticize Powell and announce his nomination just before or after the Fed event, increasing market volatility and unsettling market reaction.

U.S. Treasury Secretary Scott Bessent recently said Trump could make a decision by the end of the month. The US president also told CNBC that he would prefer to keep White House economic adviser Kevin Hassett in his current position.

BlackRock chief bond investment manager Rick Rieder, Fed Governor Christopher Waller and former Fed Governor Kevin Warsh are the final three candidates in the race. Powell’s term as Fed chairman ends in May, but his term at the central bank will last until 2028. During the press conference, he will likely be asked whether he intends to finish his term. If Powell signals that his retirement will come sooner rather than later and Trump appoints Waller or Warsh as the next Fed chairman, markets could tilt towards a more dovish policy stance, hurting the USD and strengthening EUR/USD.

Rieder, on the other hand, is widely seen as someone who is less influenced by politics and who assesses economic conditions to make the right policy decisions. While that doesn’t necessarily mean he wouldn’t take a dovish stance, he is, after all, a market man and his appointment could at least alleviate market concerns about the Fed losing its independence.

In a post published on Platform X in response to the inflation data, “we believe the Fed is likely to become increasingly concerned about genuine labor market weakness and will respond with moderate cuts to policy rates,” Rieder said, adding:

“However, given the noise in recent data, including this report, the Fed will likely choose to wait until the meeting to begin cutting interest rates again. 2026 will likely see much greater dispersion in the paths of monetary policy, economic growth trends and credit markets.”

Eren Sengezer, Chief Analyst for the European Session at FXStreet, presents the near-term technical outlook for EUR/USD:

“The Relative Strength Index (RSI) indicator is holding near overbought conditions on the daily chart, and EUR/USD is holding above the 20-day and 100-day simple moving averages (SMAs), highlighting the bullish trends in the near-term technical outlook. On the other hand, 1.1918 (September high) levels off as an immediate resistance level ahead of 1.2000 (round level). On the other hand, 1.1821 (Friday’s close) can be seen as the first support level before 1.1760 (static level), followed by 1.1710 (20-day SMA) A daily close below the latter could open the way for a steeper decline towards 1.1600.

Frequently asked questions about central banks

Central banks have a key task of ensuring price stability in a country or region. Economies constantly struggle with inflation or deflation resulting from price fluctuations of certain goods and services. A constant enhance in the prices of the same goods means inflation, a constant fall in the prices of the same goods means deflation. The task of the central bank is to maintain demand at an appropriate level by changing basic interest rates. For the largest central banks, such as the US Federal Reserve (Fed), the European Central Bank (ECB) and the Bank of England (BoE), the task is to keep inflation close to 2%.

The central bank has one crucial tool at its disposal to raise or lower inflation, and that is to change its benchmark interest rate, commonly known as the interest rate. At the times indicated above, the central bank will issue a statement containing its key interest rate and provide additional justification for why it is maintaining or changing (lowering or raising) it. Local banks will adjust their savings and loan rates accordingly, which will in turn make it harder or easier for people to earn money on savings and for companies to take out loans and invest in their businesses. When a central bank increases interest rates significantly, it is called monetary tightening. Lowering the reference rate is called easing monetary policy.

The central bank is often politically independent. Members of the central bank’s policy board go through a series of panels and hearings before being appointed to a position on the policy board. Each member of this board often has some belief about how the central bank should control inflation and the resulting monetary policy. Members who want a very loose monetary policy, with low interest rates and low-cost credit, to significantly stimulate the economy, while being content with inflation just above 2%, are called “doves”. Members who rather want higher interest rates to reward savings and who want to keep inflation contained all the time are called “hawks” and will not stop until inflation reaches 2% or just below.

Typically, each meeting is chaired by a chairman or president who must reach a consensus between hawks and doves and has the final say when votes are split to avoid a 50-50 tie on whether current policy needs to be adjusted. The chairman gives speeches, which can often be followed live, during which the current state of monetary policy and prospects is conveyed. The central bank will try to push through its monetary policy without causing wild swings in interest rates, stocks or its currency. All central bank members will present their position to markets ahead of the policy meeting. In the days before a policy meeting, until a modern policy is announced, members are prohibited from speaking publicly. This is called the blackout period.

Economic indicator

Fed Monetary Policy Statement

Following the Federal Reserve’s (Fed) interest rate decision, Federal Open Market Committee (FOMC) publishes a statement on monetary policy. This statement may influence the volatility of the US dollar (USD) and determine a short-term positive or negative trend. A hawkish view is considered bullish for USD, while a dovish view is considered negative or bearish.