Trump-Powell Showdown Makes Wednesday's Fed Meeting About Much More Than Rates

Wednesday's Federal Reserve meeting is expected to be routine on paper ? but markets may be bracing for something far less ordinary.

Any fireworks are unlikely to come from monetary policy, but Chair Jerome Powell's press conference could turn tense as politics, subpoenas and presidential pressure overshadow an otherwise quiet meeting.

According to CME FedWatch data, there's a 98% probability the Federal Open Market Committee keeps the federal funds rate unchanged at 3.50% to 3.75%.

Looking ahead, expectations for March lean toward a hold. Markets assign about an 82% chance of no change versus a 17% probability of a 25-basis-point cut.

Powell will preside over the next three meetings before his term as chair ends in May, raising the stakes around every word he delivers.

Powell's Final Stretch As Fed Chair In A Political Shadow

This meeting marks one of Chair Powell's last appearances at the helm of the Fed.

Earlier this month, Powell delivered an extraordinary public statement after the Department of Justice served the Federal Reserve with grand jury subpoenas.

The issue, ostensibly tied to a renovation project at Fed buildings, has been widely interpreted as political pressure from the Trump administration.

"This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions?or whether instead monetary policy will be directed by political pressure or intimidation," Powell said in his latest Jan. 11 statement.

“Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people,” he added.

That backdrop sets the stage for a press conference that could quickly veer away from inflation and employment ? and toward questions about institutional independence.

Economists broadly expect Powell to stick closely to his January 11 remarks and avoid elaborating further.

Bank of America economist Aditya Bhave expects Powell to be "peppered with questions about politics," including the DOJ investigation, his decision to attend oral arguments on Fed’s Lisa Cook hearing last week, and whether he plans to remain a Fed governor after stepping down as chair.

Most observers expect Powell to reveal little.

"He will likely say he has nothing to add," Bhave said, noting that Powell has historically avoided speculating on personal decisions or commenting on ongoing legal matters.

"We do not expect him to show his cards yet," he added.

Next Rate Cut? Not Before June, Say Analysts

With three rate cuts already delivered between September and December 2025, the Fed is widely expected to pause and assess their impact on growth and inflation.

Goldman Sachs predicts the next 25-basis-point cut will come in June, followed by another in September, bringing the target range down to 3%-3.25%.

Goldman’s economist David Mericle said Powell is likely to stress that three recent rate cuts should help stabilize the labor market while policymakers assess their impact.

The case for further easing hinges on inflation progress and labor market strength. If the labor market steadies this year, Mericle said further cuts would feel less urgent.

What Markets Will Really Be Watching

The Fed's rate decision may do little to jolt markets?but Powell's tone could ripple far beyond Wall Street.

With inflation progress stalling, labor market signals still murky and the Justice Department's probe casting a long political shadow, traders will parse Powell's every word to gauge how fiercely he stands behind the central bank's independence from President Donald Trump.

Adding to the stakes is the recent slide in the U.S. dollar.

The U.S. Dollar Index (DXY) ? tracked by the Invesco DB USD Bullish Fund ? has dropped for four straight sessions, hitting its lowest level since February 2022, as fears grow that political interference could compromise the Fed's credibility and policymaking integrity.

In this environment, silence isn't neutral.

Chart: US Dollar Hits 4-Year Lows Ahead Of January’s Fed Meeting

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Image created using photos from Shutterstock and Fed.