Summary: The Federal Reserve is expected to leave its policy rate unchanged on Wednesday, pausing after three straight 25-basis point cuts. Latest economic releases present an uneven picture for the Fed's twin mandate: inflation remains somewhat persistent while the labor market has delivered mixed results. Investors are focusing on Fed Chair Jerome Powell's public remarks, particularly any response he may offer to questions surrounding a Department of Justice investigation into Fed building renovations and the broader issue of central bank independence.
The expectation for no move comes after the Fed trimmed the federal funds rate by 75 basis points at the end of last year. In December, Chair Powell described the policy rate as "now within a broad range of estimates of its neutral value" and said the central bank was "well positioned to wait to see how the economy evolves." Those comments set the stage for a cautious approach after the recent easing cycle.
Market strategists and wealth managers have largely interpreted incoming economic signals as a reason to pause. "Rate cuts at the moment are not justified, given improving labor market data, stable inflation data and the simple fact that the Fed has just completed three rate cuts in a row and it’s prudent to now take a wait and see approach," said Glen Smith, chief investment officer at GDS Wealth Management. He added, "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, which will also be under the rein of a new Fed Chair."
Beyond the policy decision itself, investors will be parsing Powell's language in the post-decision press conference. Attention is heightened not only because the rate outcome is largely priced in, but because of recent developments involving the Justice Department. Earlier this month, the U.S. Department of Justice served the central bank with grand jury subpoenas related to the renovation of a Fed office building. In response to questions about that inquiry, Powell said the investigation was a punishment for the Fed "setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President."
The remarks add a political overlay to an otherwise conventional policy meeting. President Donald Trump has sparred publicly with Powell, criticizing him for not pushing rates lower and at times threatening to remove him from his post. The confrontation has amplified investor interest in any statements from the Fed chief addressing the agency's ability to make rate decisions independently.
Glen Smith noted the unusual context for this press conference, saying investors should expect Powell to confront questions about the DOJ inquiry and to discuss broader issues surrounding the Fed's independence. For market participants, the risk-adjusted focus has shifted from the numerical policy pronouncement to the tone and content of the Fed chair's public remarks.
On Wall Street, traders have largely accounted for the expected hold. With the decision priced in, attention will converge on Powell's answers and any signals about the Fed's outlook. For investors tracking equity benchmarks, some commonly held exchange-traded funds that mirror the S&P 500 include SPDR S&P 500 ETF Trust (NYSE:SPY), Vanguard S&P 500 ETF (NYSE:VOO), and iShares Core S&P 500 ETF (NYSE:IVV).
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What to watch:
- Whether the Fed keeps the policy rate unchanged following three consecutive 25-basis point cuts.
- Powell's comments on the Department of Justice investigation and any remarks touching on the Fed's independence.
- Market reaction, with attention on equities and interest-rate sensitive sectors as investors parse the press conference.