Why Fed Isn’t Cutting Rates Yet

Hands exchanging money in front of Capitol building.

A “not bad enough” jobs report is giving the Federal Reserve cover to keep rates high on Main Street families while Wall Street shrugs and carries on.

Story Highlights

The latest jobs numbers are soft but not severe enough to force the Fed into an immediate rate cut.
Markets now expect only slow, limited easing in 2026, leaving borrowing costs stubbornly high for families and small businesses.
Fed insiders are split between cautious gradual cuts and calls for larger reductions to stop choking growth.
Households still pay the price for years of Biden-era inflation and fiscal mismanagement baked into today’s forecasts.

Jobs Report Sends a Mixed Message to Workers and the Fed

The most recent U.S. nonfarm payrolls report shows a labor market clearly cooling, but not collapsing, and that nuance is exactly what the Federal Reserve is seizing on. Hiring is slowing and unemployment has moved up toward roughly 4.6 percent, signaling softer conditions than the boom years before Biden-era inflation took hold. Yet the report does not show the kind of sharp deterioration that historically forces the Fed into emergency cuts, so officials feel no urgency.

Instead of acting quickly to relieve pressure on workers, the Fed is using this “soft but not catastrophic” data to justify staying on its current path of slow, carefully spaced moves. Traders in bond and futures markets have responded by trimming expectations for a cut at the very next Federal Open Market Committee meeting while still penciling in some easing later in 2026. For everyday Americans, that translates into more months of elevated borrowing costs.

Rate Cuts Delayed While Families Face Higher Costs

After driving rates sharply higher to clean up the inflation mess left from the Biden years, the Fed began modest cuts in 2025 as price pressures eased but remained above its 2 percent target. By December 2025, the federal funds rate had been nudged down to around a 3.50 to 3.75 percent range, with officials signaling only one more quarter-point cut likely in 2026. That still keeps policy slightly restrictive instead of fully normalizing for workers and savers.

Financial markets, as usual, are a bit more optimistic than the central bank itself. Investors broadly expect one to two cuts in 2026, amounting to about half a percentage point of easing that would move rates closer to a so-called neutral level near 3 percent. Even under that friendlier scenario, households will not see a return to the ultra-cheap money era that helped mask bad fiscal and regulatory decisions; instead, they face a world of moderately high mortgage and credit costs.

Internal Fed Split Highlights Deeper Policy Tensions

Inside the Fed, the latest jobs data has intensified a rare and public split over how aggressively to cut. Chair Jerome Powell has stressed a cautious, data-dependent stance, arguing that policy is now close to neutral and the central bank can afford to wait for clearer evidence on jobs and inflation before moving faster. In his view, incremental quarter-point adjustments are enough to guide the economy toward stable prices and solid employment without reigniting inflation.

Other policymakers, however, argue this wait-and-see posture risks keeping policy too tight for too long. Governor Stephen Miran has been especially vocal, calling the current stance clearly restrictive and urging larger “jumbo” cuts to relieve pressure on growth and hiring. At the same time, regional presidents like Austan Goolsbee and Jeffrey Schmid have opposed even small cuts, preferring no change because they still see inflation risks. That combination of hawks and doves fighting over pace and size is unusual for a body that prefers consensus.

Lingering Biden-Era Inflation Keeps Pressure on Households

Even as inflation has cooled from its peak, official projections still put price growth above the Fed’s 2 percent target for the next couple of years, with core measures hovering closer to 2.5 percent through 2026. Part of that persistence reflects earlier policies that overheated demand and tolerated higher prices, as well as trade and tariff structures that continue to keep certain imported goods costly. The result is a slow grind downward in inflation, not a rapid return to price stability that would justify aggressive easing.

For American families and small businesses, that means a double burden: wage growth moderating as the labor market softens, while key expenses like housing, groceries, and financing stay elevated. Congressional Budget Office forecasts, built on this same macro environment, anticipate unemployment peaking near 4.6 percent and long-term Treasury yields nudging higher toward roughly 4.3 percent by 2028. Those higher yields flow directly into mortgage rates and business loans, squeezing budgets even if short-term rates inch lower.

Conservatives who value sound money and responsible stewardship can see the long shadow of Washington’s past mistakes in these numbers. Years of overspending, loose policy, and regulatory overreach under leftist leadership helped ignite the inflation that forced today’s rate shock. Now, even as the Trump administration works to rebuild growth through tax relief, deregulation, and America-first trade and energy policies, the Fed’s cautious playbook keeps many households from fully feeling the benefits.

What This Means for Conservative Households and Businesses

Looking ahead, both the Fed and independent forecasters envision a middling path: real economic growth around 2.2 to 2.3 percent, unemployment modestly above pre-pandemic lows, and interest rates settling near a three to 3.4 percent federal funds rate over the next several years. That scenario avoids a deep recession but does not deliver the broad-based boom many Americans enjoyed when taxes were cut, regulations slashed, and energy unleashed during Trump’s first term.

For savers and retirees, somewhat higher rates can finally provide real returns after years of near-zero yields, but only if inflation continues to drift lower. For borrowers, especially younger families trying to buy homes or small-business owners needing capital, the combination of sticky prices and slower Fed cuts feels like a continuing penalty for policies they never supported. The latest “not bad enough” jobs report simply confirms that this slow, grinding adjustment will continue rather than deliver immediate relief.