Powell’s remarks, Trump’s pressure, and court cases loom larger than policy decisions.
After cutting interest rates by 75 basis points in the latter half of 2025, the first meeting of the Federal Open Market Committee (FOMC) in 2026 kicked off on Tuesday. The meeting is being closely watched globally, not so much for the interest rate decision, which is widely expected to remain unchanged, but for its political messaging.
The timing of the meeting makes it particularly significant, as global markets await US Federal Reserve Chair Jerome Powell’s media address on Wednesday. Powell is expected to speak after the US Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment in a multi-year project to renovate historic Federal Reserve office buildings.
Adding to the uncertainty, the FOMC meeting comes in the aftermath of a US Supreme Court hearing related to the possible removal of Fed Governor Lisa Cook over allegations of mortgage fraud.
As a result, this meeting is likely to be overshadowed by a broader and more consequential question: the independence of the US Federal Reserve. Speculation has intensified that a new Fed chief could be named at any time, as the US President has already begun interviewing candidates for the position. The June FOMC meeting is expected to be the first under a new Fed leadership.
Over the past month, concerns around Fed independence have moved to the forefront, as Trump has intensified pressure on the central bank to lower interest rates. However, economic data present a far more complicated picture.
The personal consumption expenditure (PCE) index—the Fed’s preferred inflation gauge—rose 2.8 per cent in December, remaining well above the Fed’s 2 per cent target. This suggests inflation remains sticky and argues for keeping interest rates elevated. At the same time, the labour market has shown early signs of cooling, with the US economy adding around 50,000 jobs in December—lower than the pace seen through much of 2025—strengthening the case for rate cuts to support growth.
Simply put, the US Federal Reserve is facing a delicate balancing act and can realistically address only one challenge at a time. Markets have already priced in that the current FOMC meeting will leave interest rates unchanged in the 3.50–3.75 per cent range, as policymakers await more clarity from incoming data.
According to experts, markets are now factoring in the possibility of interest rate cuts only in the second half of 2026, potentially under a new Fed leadership.
Trump has remained adamant about pushing for lower interest rates and is widely expected to appoint a Fed chair more aligned with his policy preferences. However, the structure of the Federal Reserve limits the influence of any single individual. Interest rate decisions require approval from the broader FOMC, where a chair appointed by Trump alone is unlikely to wield outsized influence.
Even Trump has publicly acknowledged this constraint. Speaking to CNBC on the sidelines of the World Economic Forum in Davos, he said, “The problem is that they (US Fed governors) change once they get the job.”
Against this backdrop, the first FOMC meeting of 2026 is shaping up to be more political than economic. Questions around central bank independence, the outcome of legal proceedings involving Lisa Cook, the possibility of Powell completing his remaining term, and the Senate confirmation process for a future Fed chair have combined to make this meeting unusually complex and closely scrutinised.
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