The Federal Reserve is widely expected to halt its interest-rate-cutting cycle this week, as a steadier jobs market restores a degree of consensus at the central bank after months of growing division.
Several officials, including some close to the chair, have been signaling that rates are now in the right place — at 3.5%-3.75% following three consecutive cuts — to shore up employment and still keep downward pressure on inflation.
“They are now essentially within the strike zone of neutral estimates,” said Josh Hirt, senior US economist at The Vanguard Group Inc., referring to the level where rates will neither restrain nor stimulate the economy. “That brings about more caution, less urgency” for more cuts, he said.
The meeting offers Chair Jerome Powell a chance to direct attention away from the political and legal dramas engulfing the Fed, and back to the central bank’s core job of controlling inflation and maximizing employment. Any respite may prove short-lived. The expected decision to hold rates is likely to amplify the outrage of President Donald Trump, who wants them slashed.
The Federal Open Market Committee’s statement is due at 2 p.m. Wednesday in Washington, and Powell will address reporters at 2:30 p.m.
His remarks will be scrutinized for hints about how long the Fed might stay on hold, what could tilt the balance back toward cuts — and whether the chair has any new moves up his sleeve in the fight with Trump.
‘Not as Urgent’
On the economic front, fresh data have helped ease the tensions that tore the FOMC in opposite directions over recent months.
A sharp slowdown in hiring spooked officials who worried the labor market might be near a tipping point. But another camp remained wary of inflation — and pushed back more vociferously with each rate cut. By December, Powell had a near-revolt on his hands, with as many as eight regional Fed presidents in opposition. The split was exacerbated by a lack of data due to the government shutdown.
Recent readings have taken some of the edge off the debate. Underlying consumer price inflation for the year through December came in at a less-than-expected 2.6%, helping settle the nerves of policy hawks.
On the jobs side, after rising to a four-year high of 4.5% in November, unemployment has ticked back down. Other labor-market gauges also offered reassurance that there’s no wave of layoffs in sight, even if hiring is sluggish.
“Overall the situation is not as urgent to require any Fed policy action,” said Yelena Shulyatyeva, senior US economist at the Conference Board. She remains more worried about jobs than inflation, but sees the labor market in a “fragile equilibrium” for now, with gains concentrated in a handful of industries.
Wall Street Shift
Investors in the $30 trillion Treasury market have positioned for an extended hold on rates. Swap contracts show the next cut is now expected in July, with the potential for another toward the end of the year. Wall Street analysts have pushed their 2026 rate-cut bets into the later part of the year — or, in JPMorgan’s case, scrapped them entirely.
“There’s really no convincing argument that the Fed needs to really do anything here,” said Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities. “They’re on hold, short term.”
Not every policymaker has been placated. Fed Governor Stephen Miran, who’s on unpaid leave from his post as a senior adviser to Trump, has called for 150 basis points in cuts this year. Vice Chair for Supervision Michelle Bowman said officials should avoid signaling the central bank will pause the easing cycle.
But the pair appear isolated. Other policymakers who’ve spoken since the December gathering have sounded comfortable with leaving rates where they are — including New York Fed President John Williams, whose views are seen as closely aligned with Powell’s. Aside from his post-meeting press conferences, Powell hasn’t spoken publicly on his policy views since Oct. 14.
Even Governor Christopher Waller, who back in June was the first Fed official to advocate for rate cuts, has toned things down. “Because inflation is still up, we can take our time,” he said on Dec. 17, a week after the last meeting.
‘Unusual Times’
While internal harmony has nearly been restored, there’s plenty of external heat.
Powell’s post-meeting press conference will be his first public encounter with reporters since he was served grand jury subpoenas related to a Department of Justice investigation. The DOJ is probing the Fed’s ongoing building renovations and Powell’s testimony before Congress last year about the project.
The move has rankled several Republican lawmakers — and outraged Powell, who blasted the subpoenas as a direct threat to the central bank’s ability to set interest rates free from “political pressure or intimidation.”
His extraordinary response triggered speculation that Powell may choose to remain as a Fed governor even after his tenure as chair expires in May. By doing so he would deny Trump another opening on the Board of Governors, and potentially undermine the ability of the next chair to influence rates.
The Fed chief is sure to get questions about his intentions come May, as well as the DOJ probe and the hearing he attended last week at the Supreme Court over the administration’s attempts to fire Governor Lisa Cook.
The political squalls around the Fed are a sign of “unusual times” that could make rate meetings harder to call, according to Darrick Hamilton, an economist at the New School for Social Research.
“I don’t expect that’s going to cause the current membership to steer differently than they otherwise would,” he said. Still, “pressure is there, and I suspect it will have an impact.”
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