Everyone keeps asking the same question. Why won't Powell lower interest rates already? We’ve been waiting. The markets are twitchy. If you’re looking at your mortgage statement or trying to finance a new truck, the current federal funds rate of 3.5% to 3.75% feels like a heavy weight. We saw three cuts at the end of 2025, and naturally, people thought the floodgates were opening.
They aren't. Not yet, anyway.
Jerome Powell is basically in a staring contest with the U.S. economy, and so far, the economy isn't blinking. It’s actually looking kinda buff. While everyone expected things to cool down, the GDP growth forecast for 2026 was recently bumped up to 2.3%. That’s not a number that screams "emergency rescue needed."
The Real Reason Why Won't Powell Lower Interest Rates Right Now
To understand what’s happening in Powell’s head, you have to look at the "neutral rate." This is the Goldilocks zone of interest rates—not too hot to cause inflation, not too cold to cause a recession. Powell recently hinted that the Fed might already be there. If the current rate is neutral, why move it? Moving it lower could accidentally pour gasoline on a fire that’s still smoldering.
Honestly, the Federal Open Market Committee (FOMC) is more divided than a Thanksgiving dinner during an election year. In the December 2025 meeting, we saw three dissents. That’s huge. Usually, these folks try to show a united front, but right now, you’ve got people like Austan Goolsbee and Jeffrey Schmid arguing to keep things steady, while others are still pushing for cuts.
Inflation is the Stubborn Guest Who Won't Leave
Inflation is the big one. It's the primary reason why won't Powell lower interest rates as fast as the White House wants. Even though it's down from the terrifying peaks of a few years ago, Core PCE (the Fed’s favorite metric) is still hovering around 2.6%. The target is 2.0%.
That 0.6% gap might seem small, but to a central banker, it’s a chasm. Powell is terrified of the "1970s mistake"—cutting rates too early, letting inflation roar back, and then having to hike rates to double digits to fix it. He’d rather be a little too late with a cut than a little too early.
- Shelter costs: Rent and housing prices are still sticky.
- Services: Haircuts, travel, and healthcare haven't seen the price drops that gadgets and clothes have.
- Tariff shadows: There’s a lot of talk about how new trade policies might push prices up in early 2026, and the Fed is playing it safe until they see the actual data.
The Trump Factor and Fed Independence
It’s no secret. President Trump wants rates lower. He’s been vocal—very vocal—about it. There’s even been weird legal drama involving the Justice Department and Powell’s testimony about building renovations.
But here’s the thing about Powell: the more you push him, the more he tends to lean into the Fed’s independence. He’s made it clear that the Fed doesn't take orders from the Oval Office. His term ends in May 2026, and he seems determined to go out as the guy who stayed the course, regardless of the political heat.
If he cuts rates just because the President said so, the Fed loses its most valuable asset: credibility. If the market stops believing the Fed is independent, the whole system starts to wobble.
The Jobs Market Isn't Breaking
If people were losing jobs by the millions, Powell would cut rates tomorrow. But they aren't. The unemployment rate is sitting at 4.4%.
Sure, it’s harder for recent college grads to find work right now—Goldman Sachs pointed out that unemployment for 20-24 year olds is up significantly—but the "big" number isn't scary enough yet. As long as most people have a paycheck, the Fed feels they have "room to wait."
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What Most People Get Wrong About the Dot Plot
You've probably heard of the "Dot Plot." It’s basically a chart where Fed officials put a dot where they think rates should be in the future.
The latest one? It only shows one more 25-basis-point cut for the entirety of 2026.
Investors were pricing in two or three cuts. That mismatch is why the stock market has been so grumpy lately. The experts like Michael Feroli at J.P. Morgan are even saying we might see zero cuts this year.
"If you look at financial markets or GDP growth, it doesn't really feel like rates are restrictive," Feroli recently told CNBC.
Basically, the economy is handling these high rates surprisingly well. If the patient is walking and talking, the doctor (Powell) isn't in a rush to increase the dosage of "cheap money."
Actionable Insights for Your Wallet
So, if the answer to "why won't Powell lower interest rates" is basically "the economy is too strong and inflation is too stubborn," what do you actually do?
1. Lock in yields while you can.
If you have cash sitting in a boring savings account, you're missing out. High-yield savings accounts and CDs are still offering great rates because the Fed is holding steady. If they do eventually cut in late 2026, these rates will disappear.
2. Don't "wait for 3%" to buy a home.
Many people are sitting on the sidelines waiting for mortgage rates to hit 3% or 4% again. Based on the Fed's current stance, that's not happening anytime soon. If you find a deal that works at 6% or 6.5%, it might be better to jump in and refinance later—if rates ever do drop—rather than waiting for a "neutral" that may be higher than we're used to.
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3. Watch the "Belly of the Curve."
For investors, the 3-to-7-year Treasury range is currently a "sweet spot." It offers a decent return without the extreme volatility of long-term bonds.
4. Keep an eye on the May 2026 transition.
Powell’s departure in May is the "X factor." A new Fed Chair might have a totally different philosophy. If a more "dovish" (pro-rate-cut) chair is appointed, we could see a sudden shift in policy by summer.
The bottom line? Powell isn't being mean. He's being cautious. He's looking at a world where the government is spending a lot, the labor market is holding firm, and prices are still rising faster than he’d like. Until one of those things changes significantly, those high interest rates are sticking around like that one guest who doesn't realize the party ended at midnight.