U.S. central bank officials are expected to leave interest rates unchanged this week, citing inflation risks and economic resilience while emphasizing the Federal Reserve’s independence amid renewed pressure from President Donald Trump.
By yourNEWS Media Newsroom
The Federal Reserve is widely expected to keep interest rates steady when policymakers meet Tuesday and Wednesday, resisting calls from Donald Trump to sharply cut borrowing costs as officials continue to stress the importance of institutional independence.
The central bank has reduced rates three consecutive times since September as signs of labor-market cooling emerged, bringing its benchmark rate into a range of 3.50% to 3.75%. However, Fed Chair Jerome Powell has indicated that additional cuts would require stronger justification, signaling a higher threshold for easing at the January meeting.
“The fact that growth is strong, unemployment is low, equity markets are close to all-time highs and inflation is above target all argue for a pause,” analysts at ING said in a note, adding that Powell’s firm defense of Fed independence reinforces expectations for rates to remain unchanged.
On Jan. 11, Powell issued a rare public statement disclosing that the Department of Justice was investigating him in connection with a $2.5 billion renovation of the Fed’s headquarters. Powell characterized the threat of criminal charges as retaliation for policymakers setting rates in the public interest rather than yielding to presidential demands.
Trump has repeatedly criticized Powell, asserting there is “no inflation” and questioning the Fed chair’s competence and integrity. Former Cleveland Fed president Loretta Mester disputed that assessment, noting that U.S. inflation has remained above the Fed’s 2% target for more than five years.
“I think the Fed needs to keep a pretty tight eye on where the inflation is going,” Mester told AFP, cautioning that while price pressures could ease as Trump’s trade tariffs work through the economy, policymakers need “more convincing evidence.”
Cost increases have also widened what KPMG chief economist Diane Swonk described as a “large wedge” between how higher-income and lower-income households perceive the economy. Swonk warned that although the gap could narrow temporarily in early 2026 as fiscal stimulus arrives, including larger tax refunds tied to expanded tax cuts, that dynamic could also “cause a more entrenched bout of inflation.”
At the same time, employment growth has shown signs of stagnation, forcing the Fed to balance the risk of easing too quickly against the need to prevent inflation from becoming entrenched.
The Fed convenes eight times a year to set monetary policy, and Oxford Economics chief U.S. economist Michael Pearce said the policy dilemma has eased somewhat. Recent data suggest labor-market risks are less acute than they were months ago, while the threat of accelerating inflation has moderated, he wrote.
Even so, Pearce cautioned that developments outside the rate-setting process “have the potential to shake up the path of monetary policy.”
Beyond the investigation into Powell, Trump has moved to remove Fed Governor Lisa Cook, triggering a legal dispute that could redefine the limits of presidential authority over the central bank. Traditionally, Fed board members can be dismissed only “for cause,” a standard understood to mean misconduct or failure to perform duties. The administration has pressed a broader interpretation, seeking Cook’s removal over mortgage fraud allegations she denies.
The Supreme Court of the United States heard arguments on the matter this week. In a statement afterward, Cook said the case centers on whether the Fed will continue to set policy “guided by evidence and independent judgment or will succumb to political pressure.”
Pearce described a “small risk” that the government prevails, warning that such an outcome could “pave the way for a substantial dovish transformation on the committee over time,” shifting the balance toward officials more inclined to favor lower interest rates.
Analysts expect Powell to avoid political commentary during his post-meeting press conference Wednesday, even as divisions persist over the future direction of U.S. monetary policy.
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