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US Economy: Inflation High, Jobs Strong, Rates Steady
28 Jan
Summary
- Fed likely to hold interest rates steady due to inflation and labor.
- Credit conditions are easing, not constraining business or consumer spending.
- Financial markets anticipate rate cuts in the latter half of the year.
As of January 28, 2026, the Federal Reserve is widely anticipated to keep U.S. policy rates unchanged following its two-day meeting. This decision is primarily driven by persistent elevated inflation and a labor market that has softened but not collapsed.
Easier credit conditions may also reinforce the case against immediate rate cuts. Surveys and bank earnings reports indicate increased demand for loans, suggesting that borrowing costs are not significantly hindering business investment or consumer spending. Analysts expect this trend to continue.
While the Fed's official survey on banking conditions is forthcoming, preliminary data from early surveys showed rising loan demand, particularly from businesses and for housing, even as banks tightened lending terms. This suggests a robust appetite for credit.
Major U.S. banks have reported increased profits and loan growth, with average loans climbing significantly last quarter at leading institutions. This indicates broader financial conditions are supportive of economic growth.
Financial markets are currently pricing in two quarter-point interest rate reductions in the second half of 2026. However, the Fed's primary concerns remain price stability and a healthy labor market, which will guide future decisions.
