Fed expected to hold rates steady, focus on Powell’s comments about independence

Investing.com -- The Federal Reserve on Wednesday is widely expected to keep its key policy rate steady, halting a run of three successive 25-basis point rate cuts. Recent economic data has painted a slightly muddy picture for the central bank’s dual mandate, with inflation showing stickiness and the labor market giving mixed signals.

After cutting the federal funds rate by a total of 75 basis points towards the end of last year, Fed Chair Jerome Powell in December said the policy rate was "now within a broad range of estimates of its neutral value" and that the central bank was now "well positioned to wait to see how the economy evolves."

"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," Glen Smith, chief investment officer at GDS Wealth Management, said.

"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," Smith added.

Fed independence in focus

Even more so than the interest rate decision, investors will be keeping a close watch on whether Powell will make any comments about the Trump administration’s investigation.

Earlier this month, the U.S. Department of Justice served the central bank with grand jury subpoenas over the renovation of a Fed office building. In an extraordinary move, Powell then said that 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."

President Donald Trump has had a long-running spat with Powell, having publicly ridiculed him for not lowering interest rates and threatening to have him fired.

"This is the first Fed press conference since news came to light about a DOJ investigation into Powell relating to the construction costs of the new Fed building, so we expect Powell to address this during the press conference and broader questions about the Fed’s independence," GDS Wealth’s Smith said.

For Wall Street, the interest rate decision is largely priced in, and it will be Powell’s post decision press conference that will be the focus. Here are some popular exchange-traded funds that track the benchmark S&P 500 index: 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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