Powell and the Fed will probably defy Trump once again by keeping rates steady today

By Bryan Mena, CNN

Washington (CNN) — Federal Reserve officials convene this week at a pivotal moment in the US central bank’s 112-year history, with a series of historic events putting a spotlight on their ability to set interest rates without political interference.

Officials are widely expected to announce Wednesday they will keep short-term interest rates unchanged, and possibly hint at holding off on any rate cuts for the next few months. The Fed delivered three consecutive rate cuts late last year, and several policymakers have said in recent public speeches they want to see the effects of those cuts before considering any further adjustments.

The Fed’s independence in making crucial decisions on interest rates, rooted in economic data, remains a hotly debated topic — both publicly and in the judiciary. Last week, the Supreme Court listened to oral arguments in the landmark case of Fed Governor Lisa Cook, who is challenging President Donald Trump’s attempt to remove her from her post on the central bank’s powerful board over unproven allegations of mortgage fraud.

A week earlier, Chair Jerome Powell released a remarkable video pushing back against the Trump administration’s unrelenting pressure campaign, after he revealed that federal prosecutors are investigating part of his congressional testimony last year that touched on an ongoing renovation of the central bank’s Washington, DC, headquarters.

Powell this week oversees his third-to-last meeting as chair, with his term ending on May 15. Trump could name Powell’s successor as soon as this week.

A fight for Fed independence

The conservative Justices on the nation’s highest court seemed skeptical of the administration’s arguments for firing Cook and wanting to keep her out of her post while the litigation plays out.

That included Justice Brett Kavanaugh, Trump’s second nominee to the high court. He warned that future presidents could loosely define a “cause” to fire Fed officials they disagree with, if the Trump v. Cook case sets that precedent.

“What goes around comes around,” Kavanaugh told US Solicitor General D. John Sauer, pointing out how a future Democratic president could use “trivial or inconsequential or old allegations that are very difficult to disprove” to push out Trump appointees.

“Once these tools are unleashed,” Kavanaugh said, “they’re used by both sides.”

In support of the Fed’s independence, current and former Fed officials attended the oral arguments, including Fed Governor Michael Barr, former Fed Chair Ben Bernanke, and Powell himself.

Powell has always said central bank independence is essential to the stability of any modern economy. But in his video, he struck a more forceful tone — while calling out the threat that he sees from the Trump administration.

“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Powell said in his statement. “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.”

It’s unclear whether Powell will elaborate further on the administration’s efforts to pressure the Fed when he addresses reporters during a post-meeting news conference at 2:30 p.m. ET — or default to his usual playbook of avoiding further escalation by not commenting directly.

A lengthy Fed pause?

Investors will be listening closely to any signs on the timing of future rate cuts.

In December, the median projection among Fed officials was for just one rate cut this year. Wall Street, however, widely expects two cuts this year, according to futures, starting around the summertime.

“There isn’t a clear case to cut this year, but we know that the next Fed chair is going to come in leaning dovish, so there’s a decent chance they could get enough folks on the committee to be on board with a couple of cuts,” Aditya Bhave, senior US economist at Bank of America, told CNN. “But it will be hard for that person to build a consensus.”

Last year, a weakening labor market gave Fed officials enough reason to lower rates three times, which Powell referred to as “risk management” moves, but labor market conditions are widely expected to be mostly stable this year.

Fed officials in December projected the unemployment rate in 2026 will top out at 4.4%, which is the level it was at last month.

“The unemployment rate is already above (Fed officials’) long-run estimate,” said Tom Porcelli, Wells Fargo’s chief economist. “And with interest rates still in modestly restrictive territory, I think there is a justification for scaling back at some point this year.”

But absent any concerning signs that the labor market is falling a cliff, the Fed will also likely turn to inflation data for the cue on when to lower rates again. Both Bhave and Porcelli expect the effects of Trump’s tariffs on inflation to peak sometime this year, though the Supreme Court is currently assessing the lawfulness of a bulk of the administration’s tariffs.

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