Fed on track to defy Trump, keep rates steady despite criminal probe

(The Hill) — The Federal Reserve is on track to keep interest rates steady Wednesday and defy the Trump administration's controversial efforts to reshape the independent central bank.

The Federal Open Market Committee (FOMC) is widely expected to leave its baseline borrowing rate unchanged, a move likely to infuriate President Donald Trump as he faces increasing backlash from the American public.

Trump's anger with the Fed and its chair, Jerome Powell, has grown as the president faces dismal approval ratings on the economy and historically bad consumer confidence.

With less than a year until the midterm elections, Trump is scrambling to pull any lever he can to ease financial pressure on American households. But the Fed is unlikely to follow his lead Wednesday, as bank officials grow concerned with the stubbornness of inflation, which has changed little since Trump took office.

"After cutting interest rates at each of the last three meetings, we expect the [FOMC] to take an extended pause," Michael Pearce, chief U.S. economist at Oxford Economics, wrote in a Thursday analysis.

"While the near-term policy outlook is benign, events outside the committee have the potential to shake up the path of monetary policy."

The FOMC's January meeting is the first summit of Fed rate-setters since Powell confirmed he and the bank were under criminal investigation by the Justice Department.

While the subject of the investigation is ostensibly Powell's handling of building renovations, the probe has been widely condemned by lawmakers, economists, legal experts and other central banks as a thinly veiled attempt to influence Fed monetary policy.

Powell, who spent years avoiding a direct confrontation with Trump, fired back at the administration. In a stunning video statement, Powell condemned the investigation as a "pretext" for pushing the Fed to cut interest rates and made clear he would not yield to Trump's pressure.

Powell's post-meeting press conference Wednesday will be his first appearance before reporters since the Justice Department both launched its criminal probe into the Fed and defended the Trump administration's efforts to fire Fed board member Lisa Cook before the Supreme Court.

"Ongoing tensions between the Federal Reserve and the White House elevate what might otherwise have been a quiet January meeting into a more sensational event," said Stephen Kates, financial analyst at Bankrate.

"Cook's case before the Supreme Court, along with the recent Department of Justice investigation into Federal Reserve renovations, is certain to draw extensive questioning during the press conference."

Powell attended the Supreme Court oral arguments last week, during which justices from both the liberal and conservative wings of the court questioned the Trump administration's basis for firing Cook.

Several justices expressed concerns about the implications of their ruling on the Fed's independence and how greater presidential control over the Fed could impact the economy.

Powell, an attorney by training, will likely tread carefully around questions regarding the Fed's legal battles with the Trump administration.

"With Powell having stated publicly that the Trump administration was trying to erode Fed independence, journalists may question him on whether he and the Federal Reserve see limits to Fed independence or room for coordination with the administration," wrote Steve Englander, head of North America macro strategy at Standard Chartered Bank.

"While he is unlikely to comment on Cook, Powell's linkage of subpoenas and possible indictments with monetary policy independence opens a route to questioning, in our view."

Any comments Powell makes about the legal challenges facing the Fed are likely to focus on the importance of letting bank officials make interest rate decisions based solely on their views on the economy.

The rising political pressure from the Trump administration has emerged as another obstacle for Fed officials, who ended last year deeply divided about the outlook for the U.S. economy.

The FOMC voted 9-3 in favor of cutting interest rates by 0.25 percentage points, marking the first time since 2017 the Fed chair faced three dissents. While two FOMC members supported keeping rates steady, Fed board member Stephen Miran — who is on leave from serving as Trump's top White House economist — called for a 0.5 percentage point rate cut.

Trump is eager to replace Powell with a new Fed chair likely to vote along with Miran and heed the president's input on where to set rates.

Powell's term as Fed chair, however, does not end until May, and he could stay on the Fed board as a member until 2028.

"The chair holds one vote on the committee, with the real power being able to steer the committees' direction of discussion and research among the board staff. With the committee's divergent views, any chair will find it challenging to build a consensus for a significantly different policy direction in the near term," Pearce wrote.

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