Fed hold expected as focus turns to Powell's final months

• Recent US data complicates the case for rate cuts: unemployment at 4.4%, Q4 GDP tracking above 5.4%, headline inflation at 2.7%, and core inflation at 2.6%—all above the Fed's 2% target
• Analysts expect the Fed to signal that rates remain on a downward path, with Deutsche Bank and LPL Financial anticipating at least one or two cuts later in 2026, likely in September
• Powell faces questions beyond economics, including Justice Department subpoenas, challenges involving Fed Governor Lisa Cook, and uncertainty over his successor when his term expires in May

Federal Reserve Expected to Hold Rates as Powell's Term Nears End

The Federal Reserve is widely expected to keep interest rates unchanged at Wednesday's policy meeting, maintaining the benchmark rate in the 3.50%-3.75% range. Markets are pricing in less than a 3% probability of a rate cut, according to federal funds futures.

Key Economic Indicators:

• Unemployment stands at 4.4%
• Q4 GDP growth tracking above 5.4% (Atlanta Fed GDPNow model)
• Headline inflation at 2.7%, core inflation at 2.6%
• 75 basis points of cuts already delivered since September

Market Outlook:

Analysts broadly agree the Fed has paused its rate-cutting cycle given resilient economic data. Kathleen Brooks of XTB noted it's "extremely hard to justify further rate cuts on economic grounds" amid strong growth and above-target inflation.

However, economists anticipate eventual easing later in the year. Jeffrey Roach of LPL Financial stated "it's not a matter of if the Fed will cut, it's when," pointing to housing disinflation and cooling labor markets. He expects at least two cuts in the latter half of 2026.

Deutsche Bank projects rates will remain on hold for the remainder of Powell's term, with a single cut anticipated in September. The bank expects the Fed to upgrade its growth assessment to "solid" and describe policy as "well positioned" near neutral.

Additional Considerations:

Beyond economic policy, Powell faces questions about central bank independence, including recent Justice Department subpoenas, challenges involving Fed Governor Lisa Cook, and succession planning. Powell's term ends in May.

Analysts expect Powell to emphasize flexibility and data dependence while maintaining that the long-term direction for rates remains lower, contingent on clearer signs of labor market weakness or inflation approaching the 2% target.