Fed holds interest rates steady despite DOJ probe into Powell, Trump pressure

• Powell is under DOJ criminal investigation for allegedly lying to Congress about the Fed's $2.5 billion headquarters renovation, which he characterized as politically motivated intimidation
• Three new voting members added to the Fed's 12-person committee have previously opposed last year's rate cuts, favoring a more cautious approach
• Powell's term expires in May, with Trump's preferred candidates circulating on prediction markets as potential replacements amid the president's repeated attacks calling Powell 'stupid' and claiming he has 'mental problems'

Summary

The Federal Reserve held interest rates steady at 3.5%-3.75% on Wednesday in a 10-2 vote, maintaining its wait-and-see approach amid political turmoil and external pressures. The decision was widely anticipated as policymakers balance inflation concerns against a resilient labor market and strong GDP figures.

Key Developments:

• Rates remain in the "neutral" range, neither significantly restraining nor promoting economic growth
• Most Fed officials project additional rate cuts later in 2025
• Four new members joined the 12-person voting committee as part of annual January rotation; three have opposed previous rate cuts, favoring a more cautious stance

Political Pressures:

• Fed Chair Jerome Powell faces a criminal DOJ investigation related to alleged lying during congressional testimony about the Fed's $2.5 billion headquarters renovation
• President Trump has intensified calls for aggressive rate cuts and continues attacking Powell, whom he previously called "stupid" and claimed has "mental problems"
• Powell's term expires in May, with replacement speculation mounting on prediction markets
• Powell issued a statement defending the Fed's independence, warning against "political pressure or intimidation" influencing monetary policy

Market Implications:

Christian Hoffman of Thornburg Investment Management characterized the meeting as "very boring during very interesting times," highlighting the tension between routine policy decisions and extraordinary political circumstances. The Supreme Court recently heard arguments on whether Trump can fire Fed Governor Lisa Cook, further complicating the central bank's operational independence.

The confluence of criminal investigations, presidential pressure, and leadership uncertainty creates significant uncertainty for monetary policy direction, despite the technically routine rate decision.