Washington– After two weeks of extreme stress political And legal scrutiny, the Fed will seek to make this week’s meeting on interest rates as clear and calm as possible, although President Donald Trump may still be unhappy with the outcome.
The central bank’s rate-setting committee will almost certainly keep its key short-term interest rate unchanged at around 3.6%, after three consecutive quarter-point cuts. last year. Fed Chairman Jerome Powell said after the December meeting that they were “well positioned to wait and see how the economy develops” before taking any further steps.
When the Fed lowers the short-term interest rate, it can over time affect other borrowing costs for things like mortgages, auto loans, and business borrowing, although these rates are also affected by market forces.
This week’s meeting — one of eight the Fed holds each year — will be overshadowed by the surprise revelation earlier this month that the Justice Department The Federal Reserve has called As part of a criminal investigation into testimony Powell gave last June about A.J Building renovations worth $2.5 billion. It is the first time the Fed chair has been investigated, prompting an unusual public rebuke from Powell.
Now, Powell will have to shift from feuding with the White House to asserting that the Fed’s interest rate decisions are driven by fundamentals. Economic concernsNot politics. Powell said January 11 That the subpoenas were “pretexts” to punish the Fed for not cutting interest rates as sharply as Trump wanted.
Claudia Sahm, a former Fed economist and chief economist at New Century Advisors, said Powell would be “under greater pressure to emphasize that everything we do here…is about the economy.” “We didn’t think about politics.”
Despite the scrutiny, the Fed is expected to look at interest rate policies as it always does, said Michael Jaben, chief U.S. economist at Morgan Stanley and a former Fed employee.
He added: “Meetings are taking place on a regular basis.” “There are presentations being made, there are discussions to be had…some of these other broader-based attacks on the Fed aren’t really being made.”
Shortly after the Justice Department subpoenas, the Supreme Court last week considered whether Trump could Fed Governor Lisa Cook fired Due to allegations of mortgage fraud, which Denies. No president has fired a governor in the Fed’s 112-year history. During a verbal argumentThe judges seemed inclined to let her remain in her job until the case was resolved.
Other Fed officials also indicated that the central bank is likely to keep interest rates unchanged at their two-day meeting that ends on Wednesday. The Fed’s three interest rate cuts last year were intended to support the economy after hiring slowed sharply over the summer and fell in the wake of tariffs Trump imposed in April on dozens of countries.
However, the unemployment rate It ticked less In December, after improving for much of last year, there are further signs that the labor market may be stabilizing. The number of people seeking unemployment benefits has remained historically low, suggesting layoff rates are not rising.
Meanwhile, inflation It stays high They actually rose last year, according to the Fed’s preferred measure. Prices rose 2.8% in November from a year earlier, according to the latest available data. This is up from 2.6% in November 2024.
Economists say that unless companies start cutting jobs or the unemployment rate rises, the Fed is unlikely to cut interest rates again for at least a few months. If inflation declines slowly this year, as economists expect, the Fed may cut again in the spring or summer. Wall Street investors expect interest rates to be cut by just a quarter point this year, according to futures prices.
Many economists expect growth to rebound in the coming months, which would be another reason to abandon interest rate cuts. Gabbin estimates that tax refunds could be about 20% higher this spring than last year as the Trump administration’s tax cuts take effect. Refunds could average $3,500, Jabin said.
The economy expanded at an annual rate of 4.4% in the July-September quarter last year and may have grown at a similarly healthy pace in the final three months of last year. If this strong growth continues, Fed officials will likely wait to see whether employment will rebound as well, reducing the need for further interest rate cuts.