On January 29 (Beijing time), the Federal Open Market Committee (FOMC) announced it would keep the federal funds rate target range unchanged at 3.5% to 3.75%. This decision marks the Federal Reserve’s first pause in rate cuts after three consecutive reductions since the second half of 2025.
Policy Decision
The Fed’s first rate decision of 2026 passed with 10 votes in favor and 2 against. Fed Governors Steven Milan and Christopher Waller cast dissenting votes, both advocating for a 25 basis point rate cut.
In its statement, the Fed noted that the US economy is "expanding at a solid pace," with job growth remaining subdued but unemployment showing signs of stabilization. The FOMC also acknowledged that inflation "remains somewhat elevated" and reaffirmed its commitment to returning long-term inflation to the 2% target.
Meeting Highlights
This meeting took place under unique circumstances. Fed Chair Jerome Powell has only two policy meetings left before his term ends. Meanwhile, the Fed faces unprecedented political and legal pressures. The US Department of Justice has issued a subpoena regarding the renovation project at its Washington headquarters.
At the press conference, Powell made an unusually strong statement: "Central bank independence is the cornerstone of modern democracy… Monetary policy should not be directly controlled by elected officials." He also advised that "the next chair should steer clear of politics."
Economic Assessment
The Fed’s assessment of the current economic landscape is complex. Powell stated that the US economy rests on a "solid foundation," and after some cooling, the labor market "may be stabilizing." He also acknowledged ongoing weakness in the housing market and noted that inflation in goods outside the services sector remains a major source of pressure.
Notably, Powell pointed out that most of the inflation overshoot is due to tariffs rather than demand. Excluding the impact of tariffs, core PCE is slightly above 2%. If tariff-driven inflation peaks and then subsides, the Fed may consider easing policy.
Policy Outlook
Powell emphasized that monetary policy has no preset path and that future decisions will be "entirely data-dependent." He noted that price pressures from tariffs are expected to peak around mid-2026 and then gradually ease. During the Q&A, Powell made it clear: "No one expects a rate hike at the next meeting; a hike is not anyone’s base case."
Market expectations for the Fed’s future policy path remain divided. According to the CME FedWatch Tool, there is a 13.5% chance of a 25 basis point rate cut in March 2026, while the probability of rates remaining unchanged stands at 86.5%.
Market Impact
Traditional markets reacted sharply to the Fed’s decision. Following the announcement, spot gold prices initially dipped and then surged to a new all-time high, with volatility exceeding $60 and briefly topping $5,500 per ounce. London spot gold closed up 4.6% at $5,557.02 per ounce.
The US Dollar Index moved in the opposite direction, while US Treasury yields edged higher. Goldman Sachs Asset Management expects the Fed may resume rate cuts later this year, projecting two "normalization" cuts for the full year.
Cryptocurrency Response
The cryptocurrency market responded immediately to the Fed’s decision. Bitcoin prices saw short-term volatility after the announcement. According to Gate market data, as of January 29, Bitcoin was priced at $87,868.6, down 1.42% over 24 hours. Ethereum showed a similar trend, currently trading at $2,951.05, a 1.85% decline over 24 hours.
Analysts believe the Fed’s pause in rate cuts could have complex effects on the crypto market. On one hand, maintaining higher rates may dampen demand for risk assets; on the other, expectations of future rate cuts could support cryptocurrency prices.
It’s worth noting that the market structure for cryptocurrencies remains stable. Bitcoin’s market cap stands at $1.76 trillion, accounting for 56.29% of the total market; Ethereum’s market cap is $35.369 billion, with a market share of 11.30%.
Outlook
The Fed remains cautious about the economic outlook for 2026. The committee stated that uncertainty around the economic outlook "remains elevated" and that it will closely monitor risks to its dual mandate. Powell described the current policy stance as "at the upper end of the neutral range." He also noted that if tariff-driven inflation peaks and then recedes, it would signal an opportunity for the Fed to ease policy.
Analysts suggest that unless the labor market deteriorates significantly, the next rate cut may be delayed until after Powell’s term ends. Markets are currently pricing in about 46 basis points of rate cuts for all of 2026, with a 60% chance of a cut in June.
Futures markets are also pricing in about 46 basis points of rate cuts for 2026, but the Fed’s policy path remains highly uncertain. Powell reiterated: "There is no preset path for policy." Gold prices have hit new record highs, surpassing $5,500 per ounce, while the crypto market experienced short-term adjustments following the decision. On the Gate platform, Bitcoin’s 24-hour trading volume reached $1.1 billion, with market liquidity remaining robust. Regardless of market fluctuations, the Fed’s data-driven approach has been clearly communicated to global investors, and the crypto market’s sensitivity to global monetary policy once again underscores its unique role in the modern financial system.
