Federal Reserve holds interest rates as Trump piles on pressure

• The Fed paused rate cuts after three reductions in fall 2024, with Powell stating rates are at a 'neutral level' and policy is not 'significantly restrictive'
• Trump has escalated pressure tactics including public criticism and a DOJ criminal investigation into Powell over headquarters renovation testimony, which Powell characterized as politically motivated
• Powell's term as Fed chair expires in May 2025, but his board term runs until 2028; he emphasized the importance of Fed independence and warned that losing public faith in the Fed's non-partisan decision-making would be 'hard to restore'

Federal Reserve Holds Rates Amid Unprecedented White House Pressure

Key Decision: The Federal Reserve held interest rates steady at 3.5%-3.75% on January 28, 2026, following its first rate-setting meeting of the year. This marks a pause after three rate cuts in fall 2025.

Political Pressure: Fed Chair Jerome Powell faces extraordinary interference from President Trump's administration, including:

• Personal attacks from Trump demanding rate cuts
• A Justice Department criminal investigation into Powell's handling of Fed office renovations
• Trump's claim that not lowering rates costs the U.S. "hundreds of billions of dollars"

Powell's Response: Powell characterized the investigation as a "pretext" and warned it represents potential political intimidation. He stated the probe is a consequence of "setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president."

Market Implications: The Fed's stance suggests rates will remain elevated in the near term. Powell indicated that many policymakers view current rates as "neutral," signaling no imminent cuts. He emphasized that policy doesn't appear "significantly restrictive" based on incoming economic data.

Independence at Stake: Powell strongly defended Fed independence, warning that once credibility is lost, "it would be hard to restore." He expressed confidence in maintaining independence despite ongoing political pressure.

Leadership Transition: Powell's term as Fed chair expires in May 2026, though his board term continues until 2028. He declined to comment on whether he'll remain on the board post-chairmanship or discuss details of the DOJ investigation.

The situation represents an unprecedented challenge to Federal Reserve independence with significant implications for monetary policy credibility.