The Fed is expected to pause interest-rate cuts – Here’s why

By News Room Last updated Jan 28, 2026

The United States (US) Federal Reserve (Fed) announces its interest rate decision on Wednesday. Markets widely expect the US central bank to keep the policy rate unchanged in the range of 3.5%-3.75%. As this decision is nearly fully priced in, Fed Chair Jerome Powell’s comments in the post-meeting press conference could impact the US Dollar’s (USD) performance.

The CME FedWatch Tool shows that investors see about a 98% probability of a policy hold in January, and price in a 15% chance of a 25-basis-point (bps) rate cut in March.

According to a recently conducted Reuters poll, all 100 economists surveyed expect the Fed to hold the federal funds rate unchanged in January. Moreover, 58% of respondents forecast no rate changes during the first quarter, compared with December’s poll, when at least one cut by March was anticipated.

TD Securities analysts agree that the Fed will keep rates on hold at the 3.50%-3.75% range, arguing that risk-management cuts are now over and the policy is closer to neutral.

“While Powell is likely to sound noncommittal around near term rate cuts, we expect him to remind market participants that the median Fed official still looks for easing this year,” they add. “Overall, we expect a relatively neutral reaction from the FOMC meeting. While we continue to look for rates to move lower later this year amid a combination of less prohibitive supply dynamics, strong demand, and further Fed rate cuts, the risk in the near-term is a Fed on hold for longer.”

When will the Fed announce its interest rate decision and how could it affect EUR/USD?

The Fed is scheduled to announce its interest rate decision and publish the monetary policy statement at 19:00 GMT. This will be followed by Fed Chair Jerome Powell’s press conference starting at 19:30 GMT.

The rate decision itself is unlikely to trigger a significant market reaction, but Powell’s tone could influence the USD valuation and drive EUR/USD price action.

In case Powell adopts an optimistic tone on the inflation outlook and emphasizes the need to support the labor market amid worsening conditions, investors could see this as a dovish sign. In this scenario, the USD could come under renewed selling pressure and allow EUR/USD to gather bullish momentum. Conversely, the pair could turn south if Powell notes that the central bank is not as concerned about the labor market as it was at the end of 2025 and that there are still upside risks to inflation. Investors could remain convinced of another monetary policy hold in March as a result, and the market positioning suggests that there is some room for USD gains.

Market participants will also pay close attention to headlines over the nomination of the next Fed chair. US President Donald Trump could take the opportunity to criticize Powell and announce his nomination just before or after the Fed event, ramping up the market volatility and clouding the market reaction.

US Treasury Secretary Scott Bessent said recently that Trump could reach 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’s chief bond investment manager, Rick Rieder, Fed Governor Christopher Waller and former Fed Governor Kevin ‍Warsh are the last three candidates in the race. Powell’s term as head of the Fed ends in May, but his term on the central bank runs through 2028. During the press conference, he is likely to be asked whether he intends to finish out his term. If Powell hints that his retirement will be sooner rather than later, and Trump names either Waller or Warsh as the next Fed chair, markets could lean toward a more dovish policy outlook, hurting the USD and boosting EUR/USD.

On the other hand, Rieder is widely seen as someone who would be less influenced by politics and who would assess economic conditions to make the right policy decisions. Although that doesn’t necessarily mean he wouldn’t embrace a dovish stance, he is a market person after all, and his nomination could at least ease market concerns over the Fed losing its independence.

In a post published on X in response to the inflation data, “we think the Fed is likely to become increasingly concerned about genuine labor market weakness and will respond with modest reductions in the policy interest rate,” said Rieder and added:

“However, given the noisiness of recent data, including this report, the Fed will probably choose to wait a meeting, or so, to begin cutting rates again. 2026 is likely to bring much greater dispersion across monetary policy paths, economic growth trends, and credit markets.”

Eren Sengezer, European Session Lead Analyst at FXStreet, provides a short-term technical outlook for EUR/USD:

“The Relative Strength Index (RSI) indicator keeps near overbought conditions on the daily chart, and EUR/USD holds firm above its 20-day and 100-day Simple Moving Averages (SMA), highlighting a bullish tilt in the short-term technical outlook. On the upside, 1.1918 (September high) aligns as the immediate resistance level ahead of 1.2000 (round level). On the flip side, 1.1821 (Friday’s close) could 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 door for a steeper slide toward the 1.1600 mark.”

US Dollar FAQs

The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022.
Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.

The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.

In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.

Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.

Economic Indicator

FOMC Press Conference

The press conference is about an hour long and has two parts. First, the Chair of the Federal Reserve (Fed) reads out a prepared statement, then the conference is open to questions from the press. The questions often lead to unscripted answers that create heavy market volatility. The Fed holds a press conference after all its eight yearly policy meetings.