The Federal Reserve will almost certainly leave interest rates unchanged at its policy meeting this coming week, keeping its benchmark policy rate at 3.5% to 3.75%.
Markets know it. Policymakers know it. Even Fed Chair Jerome Powell knows it. And yet, Powell’s postmeeting news conference on Jan. 28 will likely be one of the most closely followed of his tenure, given political pressures swirling about the Fed.
The Fed enters 2026 having cut the federal-funds rate target range by three-quarters of a percentage point in the second half of 2025. Inflation has come off highs but remains above the Fed’s 2% target, with recent data offering little evidence of a clear path lower. The unemployment rate, now 4.4%, has drifted higher but hasn’t surged. Hiring has slowed, but layoffs remain muted.
That combination suggests a rate-cut pause. Citi economists say Fed officials will be “comfortable leaving policy rates on hold.” But the signal that matters, they say, will come from Powell’s tone, particularly “how much Powell keeps the door open to future cuts.”
Political headlines, trade uncertainty, and shifting expectations around Fed leadership have made investors quicker to react to Powell’s tone than to the data. Investor sentiment can turn quickly when policy speculation collides with politics, says Ben Fulton, chief executive of WEBs Investments, leaving markets vulnerable to sharper moves if Powell’s language alters expectations.
Powell has recently changed his tone regarding political interference. This past week, he attended Supreme Court arguments over whether a president can remove a sitting Fed governor. Days earlier, he released a video after the Department of Justice issued subpoenas tied to a criminal probe stemming from his testimony last year about Fed headquarters renovations. The White House has pointed to rising costs as evidence of mismanagement and suggested that Powell misled Congress about the project’s scope.
He rejected that in the video. “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.” he said.
The political noise has shifted attention from the Fed’s postmeeting policy statement, which is expected to change little from December, and toward the news conference. Investors will be attuned to how Powell frames the Fed’s role as political pressures grow.
Bond markets have already shown signs of strain in response to geopolitical tensions and shifting U.S. policy expectations. Leadership uncertainty adds another layer. President Donald Trump has signaled that he is likely to keep National Economic Council Director Kevin Hassett in place, shifting speculation toward former Fed governor Kevin Warsh or BlackRock executive Rick Rieder as potential successors to Powell, whose term ends in May. Markets have interpreted the choice of Warsh as a more hawkish setup, and Treasury yields have moved higher as investors price in a later start to rate cuts.
Powell has three policy meetings left before his term ends. Trump is expected to nominate his successor shortly, and that person could be seated on the Board of Governors alongside Powell as early as the next meeting in March. Whether Powell steps down from the board entirely, or remains a governor until 2028 remains to be seen. For now, this may be one of the last moments that Powell speaks without a designated successor on the board.
Powell will likely repeat on Wednesday that policy decisions are made meeting by meeting and that Fed officials need more economic data before altering rates again. Whether markets hear this clearly may depend on the political backdrop.