Markets Ready for a Whip: Fed Pauses, Powell Key to Next Direction
The Federal Reserve is widely expected to hold its benchmark interest rate on Wednesday (January 28th) and halt its three consecutive 25 basis point cuts. Recent economic data has provided mixed signals: inflation appears still "sticky," while the labor market is sending mixed signals. After cutting rates by a total of 75 basis points toward the end of last year, Fed Chairman Jerome Powell assessed in December that the policy rate is now around the "neutral" level, leaving the central bank well-positioned to wait and see where the economy is headed.
Some market participants believe additional rate cuts are not urgent. Glen Smith, chief investment officer at GDS Wealth Management, called the current cut "unwarranted," considering the improving labor data, relatively stable inflation, and the fact that the Fed has just completed three consecutive cuts. Smith also predicts only one cut for 2026, with the highest probability occurring in the second half of the year—and likely under the leadership of a new Fed Chairman.
But the market's focus this time isn't just on interest rates. Investors are instead keeping an eye on a far more sensitive issue: the Fed's independence. The market is waiting to see if Powell will address the Trump administration's investigation. Earlier this month, the US Department of Justice issued a subpoena related to the Fed's renovation project, and Powell implied that the move felt like "punishment" because the Fed sets interest rates based on its best judgment, not the president's preferences. Trump himself has had a long-standing feud with Powell, including open criticism of interest rates and threats of dismissal.
For Wall Street, the decision to hold interest rates is essentially "priced in." Therefore, attention is expected to be focused on Powell's press conference—both to read signals about the next policy direction and to gauge how Powell will respond to political pressure.
Source: Newsmaker.id
