Markets enter a consequential week with a concentrated lineup of policy, corporate results and geopolitical headlines that could move asset prices. At the center of attention is the Federal Reserve's latest interest rate decision, a closely watched announcement taking place during a two-day policy meeting that concludes on Wednesday. The gathering comes as concerns about the Fed's independence have intensified following the opening of a criminal investigation into the central bank's chair.
Fed decision in focus
Policymakers will weigh whether to adjust borrowing costs as they assess an economy that, by many measures, remains broadly solid. Labor market indicators point to stability: employment is steady, hiring is modest and layoffs are low. Inflation, the other pillar underpinning Fed choices, has held above the central bank's 2% target, remaining elevated even as it shows signs of steadiness.
Some analysts have raised the prospect that the U.S. economy is exhibiting a "K-shaped" dynamic - a pattern in which higher-income households and corporations account for a disproportionate share of activity while lower-wage segments of the population contend with rising living costs. Against this backdrop, the expectation among most market participants is for the Fed to leave the policy rate unchanged in the 3.5% to 3.75% range.
According to CME FedWatch, traders do not see the next rate reduction arriving before June, signaling that markets expect the central bank to maintain its current stance for some months even as talk persists about potential easing later in the year.
Questions over Fed leadership
The Fed's January meeting occurs amid repeated public calls from President Donald Trump for rapid and aggressive rate cuts. Those comments have long fed worries about political pressure on the central bank, but those concerns intensified earlier this month when the Justice Department opened a criminal investigation into Fed Chair Jerome Powell. In a rare public address, Powell characterized the probe as an attempt to sway monetary policy toward the rate path favored by the president.
Powell, who was first appointed Fed Chair during President Trump's initial term, has only months remaining in his tenure at the central bank. Whether the dispute with the White House will influence his decision to remain on the Federal Open Market Committee - and thus the policymaking process - is a live question for investors.
Uncertainty also surrounds who may take over as Fed chair. Markets and prediction outlets have shifted expectations, with BlackRock executive Rick Rieder rising to the top of many lists and surpassing former Fed Governor Kevin Warsh in perceived odds. President Trump has suggested he may be down to one frontrunner to replace Powell, but the choice remains unresolved and represents a key variable for monetary policy direction.
Big tech earnings take the stage
Corporate results will provide another major input for markets this week. Investors will parse quarterly reports from several of the largest technology firms, including Meta Platforms, Microsoft and Apple. These megacap companies have been dominant force in equity markets in recent years and are central to investor hopes that substantial investments in advanced artificial intelligence will begin to pay off.
In pursuit of AI leadership, large technology firms have materially ramped capital spending - channeling funds into massive data centers and securing the specialized semiconductors required to support AI workloads. While investors have historically been willing to tolerate heavy capital expenditures, expectations have shifted: 2026 is increasingly being treated as a "show me" year in which markets want to see concrete revenue returns from those investments. This week's earnings reports are expected to offer the first concrete signals on whether these companies are beginning to deliver on those promises.
ASML's quarterly report eyed in Europe
In Europe, attention will center on ASML, the Netherlands-based maker of chipmaking equipment. The company is scheduled to release quarterly results on Wednesday. ASML's market capitalization recently crossed the $500 billion mark after major customer TSMC disclosed higher-than-expected capital expenditure plans aimed at meeting strong AI-related chip demand.
The surge in TSMC's capex helped cement ASML's position as the most valuable company in Europe, and analysts will be watching to see whether the demand tailwind from AI can push ASML's fortunes yet higher. That said, ASML has so far issued a relatively cautious growth outlook for the current year; at the lower end of its guidance, sales could come in flat. Some observers interpret that as a potential sign that the pace of wafer fab construction is not keeping up with the rapid growth in AI chip demand.
Renewed tariff threats add geopolitical risk
Trade tensions re-emerged over the weekend after President Trump warned he would impose a 100% tariff on all Canadian goods if Canada were to enter into a trade agreement with China. The president's remarks targeted Prime Minister Mark Carney, who had recently been in China to discuss trade and said last week in Davos that smaller countries need to chart strategies to address economic coercion by larger powers.
In social media posts, the president warned that "China will eat Canada alive, completely devour it, including the destruction of their businesses, social fabric, and general way of life," adding that "all Canadian goods and products coming into the U.S.A." would face a 100% import tax if Ottawa were to strike a deal with Beijing.
Prime Minister Carney, for his part, responded that Canada has "no intention" of pursuing a free trade agreement with China. He also said Ottawa respects commitments under the existing pact with the U.S. and Mexico, and that Canada would notify those partners before entering into any such arrangement.
Analysts at Vital Knowledge cautioned that investors likely do not need to devote extensive time to the prospect of a 100% Canada tariff actually materializing, but they also noted the cumulative effect of repeated, impulsive threats. Those comments suggest the ongoing pattern of public pronouncements could be gradually undermining market sentiment.
What to watch this week
- Wednesday's Fed decision and accompanying statement and press conference for guidance on the policy path.
- Quarterly reports from Meta, Microsoft and Apple for early readings on AI-driven revenue trends and capital spending payoff.
- ASML's quarterly results for indications about chip-equipment demand and the pace of fab expansion.
- Developments in the political and trade arena, especially comments or actions related to the presidential tariff threat toward Canada.
Bottom line
This week's calendar mixes central bank policy risks, high-profile corporate earnings and geopolitics. The Fed meeting will likely set the tone for interest-rate expectations, while results from big technology firms and ASML could clarify how quickly massive AI-related investments are turning into revenue. Meanwhile, renewed trade rhetoric highlights how political developments can add another layer of uncertainty for markets and for sectors sensitive to global trade flows.