After weeks of intense political and legal scrutiny, the Federal Reserve is now reportedly expected to keep its upcoming policy meeting as routine and uneventful as possible, even as President Donald Trump is unlikely to be satisfied with the outcome.
The Fed’s rate-setting committee is widely expected to leave its key short-term interest rate unchanged at roughly 3.6 percent. That would follow three consecutive quarter-point cuts last year. Fed Chair Jerome Powell said after the central bank’s December meeting that officials were “well positioned to wait to see how the economy evolves” before taking any additional action.
The Fed’s benchmark rate influences borrowing costs across the economy over time, including mortgages, auto loans, and business financing, though those rates are also shaped by broader market forces. For now, policymakers appear content to pause after last year’s cuts.
This week’s two-day meeting, one of eight held annually by the central bank, comes under an unusual cloud. Earlier this month, it was revealed that the Justice Department subpoenaed the Federal Reserve as part of a criminal investigation into testimony Powell gave last June regarding a $2.5 billion building renovation project. It marked the first time in the Fed’s 112-year history that a sitting chair has faced such an investigation and prompted a rare and public response from Powell.
Powell now faces the challenge of pivoting from a public dispute with the White House back to emphasizing that the Fed’s interest rate decisions are based on economic data rather than political pressure. On Jan. 11, Powell described the subpoenas as “pretexts” meant to punish the Fed for not cutting rates as aggressively as Trump has urged.
Former Fed economist Claudia Sahm said Powell will feel added pressure to stress that the central bank’s actions are rooted in economics alone. “Everything we’re doing here is all about the economics,” she said, adding that the Fed will seek to make clear politics played no role.
Michael Gapen, chief U.S. economist at Morgan Stanley and a former Fed staffer, said the meeting itself is likely to follow the institution’s normal rhythm despite the controversy. He said the Fed’s internal process remains focused on briefings, data presentations, and policy discussions, with outside political attacks largely absent from deliberations.
The Fed’s challenges extend beyond the subpoenas. The Supreme Court last week considered whether Trump can remove Fed Governor Lisa Cook over allegations of mortgage fraud, which she denies. No president has ever fired a Fed governor, and the justices appeared inclined to allow Cook to remain in her position while the case proceeds.
Other Fed officials have also signaled that rates are likely to remain unchanged at the meeting concluding Wednesday. Last year’s rate cuts were intended to support the economy after hiring slowed sharply during the summer and fall following Trump’s April tariffs on dozens of countries.
Since then, the unemployment rate edged lower in December, and other indicators suggest the labor market may be stabilizing. Weekly unemployment claims remain historically low, indicating layoffs have not surged. Inflation, however, remains elevated and ticked higher last year, with prices rising 2.8 percent in November compared to a year earlier.
Economists say the Fed is unlikely to cut rates again unless job growth weakens or unemployment rises. If inflation gradually cools this year, rate cuts could resume in the spring or summer. For now, investors expect only two quarter-point reductions this year.
Many economists also anticipate stronger growth in the months ahead. Gapen estimates tax refunds could be about 20 percent higher this spring as Trump’s tax cuts take effect, potentially averaging $3,500. The economy grew at a robust 4.4 percent annual rate in the third quarter and may have posted similar growth at year’s end, giving the Fed little urgency to act further.
[READ MORE: DeSantis Warns Democrats Could Revive Impeachment Tactics if They Retake House]
