Fed meeting updates: Central bank set to leave interest rates untouched as DOJ probe against Powell looms

The typically uniform Fed has been increasingly divided in its decisions. At the December meeting, the FOMC had its most split call since September 2019 with three dissents. Recent Trump appointee Stephen Miran repeatedly voted for steeper rate cuts last year. Others, like Jeffrey R. Schmid, urged a more cautious stance.

It's possible that January's rate call will be another split decision for the committee.

Top contenders to succeed Powell include former Fed Governor Kevin Warsh, Chief Investment Officer of global fixed income at BlackRock Rick Rieder, Trump's economic advisor Kevin Hassett, and Fed Governor Christopher Waller. Rieder is leading prediction markets.

Treasury Secretary Scott Bessent is in charge of the process, though any nominees are likely to hit roadblocks in Congress over the DOJ probe.

"The hope is that whoever takes Powell's role next will be similarly data driven and level headed," Elizabeth Renter, the senior economist at NerdWallet, said. "A Fed that is vulnerable to political pressure is one that will struggle to be effective at guiding economic stability."

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Trump has been vocal about his desire for lower interest rates, threatening to fire Powell and dubbing him with the moniker "Too Late." The president told The Wall Street Journal earlier this month that he hopes the next Fed chair will consult with him more closely on monetary policy. "I'm a smart voice and should be listened to," he said.

Trump added in his Davos speech that he's interviewing potential Powell successors: "Everyone that I interviewed is great. Everyone could do, I think, a fantastic job," he said, continuing, "It's amazing how people change once they have the job. It's too bad, sort of disloyalty."

Stocks were steady ahead of the rate decision and Jerome Powell's press conference. The S&P 500 pulled back from its record above 7,000 as the tech-led rally stuttered. Markets will be listening closely for updates from Powell on where he sees interest rates going through the rest of his term, but also any clues that could hint at what his successor might do.

"Markets expect Chair Powell to end his leadership term without cutting rates again. They also believe that his successor will be similarly cautious, with heavy odds (+70 percent) that Fed Funds will be within 25 basis points of 3.0 percent in December 2027," wrote Nicholas Colas, co-founder of DataTrek Research, on Wednesday.

Both the DOJ probe and Cook case have sparked widespread concern over the Fed's future, as the bank has long operated as independent and nonpartisan.

Ten heads of various world banks released a letter defending Powell, as did a group of state-level treasurers and auditors.

"We stand in full solidarity with the Federal Reserve System and its Chair Jerome H. Powell," the letter from global bank leaders read. "The independence of central banks is a cornerstone of price, financial and economic stability in the interest of the citizens that we serve."

The Trump administration accused Fed Governor Lisa Cook of mortgage fraud in August and attempted to fire her, though she has remained in her seat. Her case was heard by the Supreme Court last week, and several judges expressed disagreement with the White House.

"Your position that there's no judicial review, no process required, no remedy available, very low bar for cause, that the president alone determines — and that would weaken, if not shatter, the independence of the Federal Reserve," said Justice Brett Kavanaugh, a Trump appointee.

Powell attended oral arguments for the case in support of Cook, but did not give testimony.

The DOJ probe around Powell's testimony about the Fed renovations is ongoing. Markets and political leaders will be watching Powell's comments in this afternoon's press conference closely. Beyond posting the uncharacteristic video message online to announce the subpoena, he hasn't spoken publicly about the investigation.

The effective import tariff rate has spiked to the highest in decades.

Experts have been keeping an eye on just how much tariffs have affected inflation. Elizabeth Renter, senior economist at NerdWallet, said it's challenging to know the extent to which tariffs have had an effect because there are other headwinds, such as supply chain and inventory issues. Jason Draho, the head of asset allocation Americas for UBS Global Wealth Management, said tariffs had some effect on goods inflation, but hadn't resulted in a massive surge.

The Supreme Court has yet to rule on the legality of tariffs imposed by the Trump administration using the International Emergency Economic Powers Act.

US stocks cruised to records at the open on Wednesday, with the S&P 500 hitting 7,000 for the first time ever. Traders were bracing for the Fed decision, as well as critical earnings updates from mega-cap tech. Tesla, Meta, and Microsoft are due to report fourth-quarter earnings after the closing bell.

Markets are broadly expecting to rates to remain unchanged today. The CME FedWatch Tool shows 97% odds of the target rate remaining in the range of 3.5-3.75%. Views on Wall Street are also mixed on whether the market can expect one or two cuts in 2026.

Glen Smith, chief investment officer at GDS Wealth Management, said, "we expect just one rate cut for 2026, and while the timing of this next rate cut is debatable, it will likely come towards the second half of the year" with a new Fed chair.

Fed members can look back at last year's inflation to inform their coming interest rate decision. The inflation rate, based on the consumer price index, ended 2025 lower than it started but remained above the Fed's 2% target.

The year-over-year percent change in the shelter index continued to cool from its 2023 peak.

The unemployment rate has been at least 4% since June 2024, and ended 2025 at 4.4%. This is historically low, but it comes alongside limited vacancies, low hiring rates, and a decline in the number of Americans quitting their jobs or changing roles compared to a few years ago.

Daniel Zhao, the chief economist at Glassdoor, said last year's job market ended "with a fizzle rather than a bang." The US added 584,000 jobs in 2025, the lowest since 2003, outside recessions.

Economists and job-market experts told Business Insider that the job market was in a low-fire, low-hire environment, partly due to economic uncertainty and reduced demand after the pandemic recovery and the Great Resignation.

It's likely Fed leaders will stick to the status quo in January, in hopes that steady rates will push inflation closer to their 2% goal. Affordability is a major concern for American households, as prices rise on housing, groceries, healthcare, and more. Powell has consistently prioritized price stability during his time as chair.

The Fed is expected to cut rates at least once later this year, a move that could ease costs for borrowers and juice the job market.

Powell's term as chair ends in May, but he's eligible to remain on the Fed committee until early 2028. It's rare for former chairs to stay on as governors, and Powell has not indicated his plans.

But there's been some speculation from Wall Streeters that Trump's threats to the Fed could entice Powell to remain at the bank longer than expected.

The DOJ probe news sparked alarm among politicians, economists, and business leaders, many of whom are concerned about the future of the central bank. Powell's term as chair expires in May, and Trump is set to announce his next pick for the role in the coming weeks.

Both Democratic and Republican leaders have signaled the probe jeopardizes the search for Powell's successor.

"If there were any remaining doubt about whether advisers within the Trump Administration are actively pushing to end the independence of the Federal Reserve, there should now be none," North Carolina Sen. Thom Tillis said, adding that he will oppose any Trump nominees to the central bank until "this legal matter is fully resolved."

With around 7.5 hours until the Fed's latest rate decision is announced, things are a bit of a mixed bag in financial markets on Wednesday.

As of 6:30 a.m. ET futures for the three major US indexes are trending higher, with the Nasdaq leading the way, signaling a nearly 1% rise at the open. That's due in large part to its tech focus, with many of the biggest tech firms reporting earnings this week.

Elsewhere, futures for the S&P 500 are 0.4% higher, while the Dow Jones is up less than 0.1%.

In Europe, where markets are open, stocks are a little lower, with the UK's FTSE 100 benchmark down 0.5%, and Germany's DAX falling 0.2%.

Gold's record rally is continuing on Wednesday, with the precious metal extending its gain by another 3% to trade just under $5,300 per ounce. Silver is also higher, gaining 5.4% to trade at $111 per ounce.

Powell posted a video message on January 11 announcing that the Fed received a grand jury subpoena. The Trump administration alleges that Powell committed perjury during a June appearance before Congress, where he discussed renovations to the central bank's Washington, DC, buildings.

Business Insider obtained a letter Powell privately sent to senators detailing the Fed's construction plans and budget — the details of which match his testimony. Powell said that the probe, which could result in a criminal indictment, is an escalation of ongoing pressure from the White House.

"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 Federal Open Market Committee has penciled in one rate cut for the new year. Fed leaders opted for three quarter-point cuts last fall after months of steady monetary policy.

The White House and investors are hopeful for a looser approach to interest rates in 2026. But Powell is in a tough spot: Lower rates could speed up a slow job market, but risk a rise in inflation.

CME FedWatch is predicting a near-total chance of a rate hold on Wednesday.