Federal Reserve Chair Jerome Powell may try to direct attention back to the economy this week, with the US central bank widely expected to hold interest rates steady after three straight reductions.
But Powell's first press conference since the Fed was served grand jury subpoenas - and coming days after the Supreme Court heard arguments regarding the attempted removal of another Fed governor - is bound to include questions about political pressure, central bank independence and what the Fed chief plans to do after his term as chair ends in May.
A decision to hold rates steady this month is likely to garner broad support from policymakers following a series of contentious cuts. While the majority of officials agreed in those instances to backstop a weakening labor market, another group of policymakers pushed for the focus to remain on elevated inflation.
"Now it's kind of like a 'Kumbaya' moment," said Tim Duy, chief economist at SGH Macro Advisors. "They can almost all come together and say, 'All right, well, that's done. We can sort of take a breather here and reassess our need for rate cuts if the data changes.'"
The Fed's rate decision will be announced at 2 p.m. Wednesday in Washington. Powell will hold a press conference 30 minutes later.
Well Positioned
Officials have lowered their benchmark rate by 1.75 percentage points since September 2024, bringing it into a range of 3.5% to 3.75%. Several policymakers have said that leaves them well positioned to balance the risks to employment and inflation.
The labor market has cooled significantly over the past year, but the jobless rate declined to 4.4% in December from 4.5% the month prior, suggesting some stabilization. Inflation has also shown signs of softening but remains well above the central bank's 2% target.
Powell could send a message that interest rates are "in a good place for now," as officials wait to see how prices and employment will be affected by incoming fiscal stimulus and evolving tariff policies, said Karim Basta, chief economist for III Capital Management. Basta said he's keen to see if Powell is troubled by nearly zero job growth, or if he frames it as being consistent with lower immigration.
Similar Statement
Fed watchers are anticipating few changes to the central bank's post-meeting statement. Policymakers could adjust their description of the labor market to reflect the latest drop in the unemployment rate, said Basta. They might also nod to stronger-than-expected economic growth seen in the second half of last year, said Duy.
What Bloomberg Economics Says...
"The FOMC is widely expected to hold rates steady at the January meeting, but the gathering could still go down as a consequential one. A decision to pause rate cuts will provoke another firestorm from a White House that has already dialed up the heat on Fed Chair Jerome Powell."
-Anna Wong (Economist) and Chris G. Collins (Economist)
A rate hold this month will still face some opposition. Fed Governor Stephen Miran, who dissented at the last three meetings in favor of deeper reductions, may repeat that sentiment again this week. Michelle Bowman may also dissent after arguing earlier this month the Fed should remain ready to lower rates.
But a number of officials who previously supported cuts may be comfortable holding steady. Most notably, Governor Christopher Waller, the first policymaker to lean publicly toward lowering rates last June, has said he sees "no rush" to cut with inflation still above target.
This meeting will see four regional Fed presidents rotate into voting positions on the Federal Open Market Committee: Cleveland Fed President Beth Hammack and Dallas Fed chief Lorie Logan, who've been vocal about the risks of elevated inflation; the Philadelphia Fed's new president, Anna Paulson, who has said she remains more worried by the labor market; and Minneapolis Fed President Neel Kashkari, who said earlier this month that rates should remain unchanged at this meeting.
Press Conference
Officials are not releasing new economic projections this week, so investors will be parsing Powell's words for hints on how long policymakers expect to hold rates steady. The median projection issued in December showed officials anticipated just one quarter-point rate reduction this year.
Powell is sure to face questions about threats to the central bank's independence. The press conference will mark Powell's first public remarks since he issued a forceful statement earlier this month saying subpoenas issued to the Fed by the Department of Justice were aimed at influencing monetary policy through intimidation.
News of the subpoenas raised speculation that Powell may stay at the central bank after his term as chair expires in May, since his seat on the board does not expire until 2028. While almost sure to be asked again about his plans, Powell has repeatedly declined to answer in the past.
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