WASHINGTON—The Federal Reserve entered a new holding pattern on interest rates Wednesday and offered little clarity on when cuts might resume after contentious reductions at officials’ three previous meetings.
The decision to hold the benchmark federal-funds rate steady in a range between 3.5% and 3.75% was approved on a 10-2 vote.
Officials made fairly modest changes to the post-meeting statement explaining their decision, retaining language that has typically signaled openness to further moves without committing to a timeline.
The Fed has navigated between competing risks for months. Inflation slowed in 2023 and 2024 but then stalled out above the central bank’s 2% goal over the past year, arguing for patience. Meanwhile, concerns over a cooling labor market prompted last year’s three cuts.
Two Fed governors—both appointed by President Trump—dissented against the decision and favored a quarter-point rate cut. The Fed’s 12-person rate-setting committee includes seven presidentially-appointed governors and five regional bank presidents who aren’t political appointees.
The decision followed an interval of political pressure from the White House. The Justice Department this month opened a criminal investigation into Fed Chair Jerome Powell, who disclosed the probe in a video statement casting it as a pretext to advance Trump’s desire for lower interest rates.
Powell’s term as chair ends in May, and Trump’s advisers have said he is close to naming a successor. Governor Christopher Waller, one of four finalists, opposed Wednesday’s decision. Analysts had said casting a dissenting vote may have been a precondition for keeping his long-shot candidacy viable.
Governor Stephen Miran also dissented. Since Trump named him to fill a short-term vacancy on the Fed’s board last summer, he has dissented at all four policy meetings he has attended in favor of lower rates.
William English, a former senior Fed economist, said the political situation risks changing how the committee operates. “Normally the Fed’s an institution that operates in a kind of consensus manner,” he said. But with political stakes elevated and Powell’s tenure ending, he worries “people are getting more dug in than has been the case in the past.”
December’s meeting was one of the most divided in years, with three officials dissenting, but not all in the same direction—two opposed any cut and one favored a larger reduction. Some signaled they saw the move as a close call, and a few nonvoting presidents indicated they would have also opposed it.
The question now is whether and when to resume cutting. Twelve of 19 officials projected in December that at least one more rate cut would be appropriate this year.
The answer depends on which risk materializes first: a job market that breaks, or inflation that convincingly resumes falling toward 2%. Neither has happened since December.
Job growth has slowed sharply, but the unemployment rate has stabilized. Inflation readings have been clouded by data-collection disruptions stemming from the government shutdown.
Some officials, including Powell, have indicated more comfort looking past tariff-driven price increases. They expect those to be one-time effects, particularly because housing and labor costs have continued to soften. Others are more uneasy because inflation has been above the Fed’s 2% goal for five years.
Without further labor market weakening, the next cut may not come until after Powell’s term ends as Fed chair in May. “They’re likely on hold for a while unless there’s a big surprise,” English said.
The debate is complicated by uncertainty over how much rates are still weighing on the economy. Some officials worry rates may no longer be high enough to keep pushing inflation down. Others think policy remains restrictive enough—with rates above an estimated “neutral” level that neither spurs nor slows growth—that holding steady risks weakening the job market unnecessarily.
Even if cuts resume, “it’s still going to be kind of gradual from here,” said English. “Unless they really think the economy is weak and it needs accommodation, I’m not sure they cut a lot from here.”
Write to Nick Timiraos at Nick.Timiraos@wsj.com