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What we’re covering here
• The Federal Reserve is widely expected to hold its benchmark interest rate steady Wednesday after its first policy meeting of 2026, as the labor market and inflation come into better balance.
• The central bank cut rates three times last year as it monitored the economic effects of President Donald Trump’s aggressive policies. Unemployment ticked up last year and inflation moved slightly lower.
• It’s also the first time we’ll hear from Federal Reserve Chair Jerome Powell after his extraordinary rebuke of the Trump administration. He announced earlier this month that he is under federal investigation, saying the criminal probe is a “pretext” meant to intimidate the central bank into cutting rates to the president’s liking.
• Trump has said his pick for a new Fed chair to replace Powell, whose term ends in May, will slash rates. However, the chair is just one vote on a committee of 12 officials who make policy adjustments based on economic evidence, not political pressure.
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Fed holds interest rates steady as its independence comes under threat
From Xenix News
Federal Reserve Chair Jerome Powell during a news conference on September 17, 2025 in Washington, DC. Chip Somodevilla/Getty Images
The Federal Reserve on Wednesday kept interest rates unchanged as the US central bank fights to maintain its ability to set interest rates without political interference.
Officials kept their benchmark lending rate at a range of 3.5-3.75%, following three consecutive rate cuts late last year. Several policymakers have said in recent public speeches they want to see the effects of those rate cuts before considering any further reductions, suggesting a pause could last for a few months.
The Fed’s latest rate decision comes at a pivotal moment in the central bank’s 112-year history, as the Supreme Court reviews a case with significant implications for the Fed’s independence. Chair Jerome Powell himself pushed back against the Trump administration’s threats against the Fed’s independence earlier this month in a stunning video.
Yes, the labor market has weakened. No, that doesn’t guarantee a rate cut
From Xenix News
A job seeker waits to talk to a recruiter at a job fair on August 28, 2025, in Sunrise, Florida. Marta Lavandier/AP
Outside of recessions, last year was one of the weakest labor markets in decades. Additionally, the latest jobs report from December showed employers hired just 50,000 new workers — the most tepid job growth since December 2020, when employers laid off a net 183,000 workers.
On the surface, that, on top of other recent lackluster labor market data, would appear to make rate cuts a surefire thing for the Federal Reserve, given that it is tasked with setting rates at levels to promote maximum employment. (Generally speaking, lower rates can help boost the labor market by reducing employers’ borrowing costs, thereby freeing up funds to hire more workers.)
But the labor market is only half of the Fed’s responsibility; the other half is price stability (i.e. preventing higher inflation.) Cutting rates too quickly or by too much can help fuel higher inflation, especially at a time when higher tariffs and other factors are driving businesses to raise prices.
With both sides of the equation in mind, economists at Morgan Stanley anticipate the Fed will hold rates steady for longer than they previously forecast.
“Labor demand sill remains soft – with private payrolls rising by only 37k in December and 29k on a three-month moving average – but we think the Fed can live with slower employment growth so long as the unemployment rate is stable (or falling),” they said in a note earlier this month. Their expectation now is that the next rate cut will come in June.
Consumer confidence crisis?
From Xenix News
A customer shops in a supermarket in New York on January 22. Charly Triballeau/AFP/Getty Images
America’s economic mood deteriorated in January to its lowest level in more than a decade as consumers fretted about geopolitical tensions, affordability and President Donald Trump’s unrelenting trade war.
Americans haven’t been in this bad of a mood about the economy since 2014, according to the closely watched Consumer Confidence Index. This month, the index fell 9.7 points to its lowest reading in nearly 12 years.
Put another way: Even in the depths of the 2020 pandemic, consumers were more confident about the economy than they are now, according to the index, which is published by the nonprofit think tank The Conference Board.
To be sure, these sentiment surveys tend to tell us more about what Americans believe than about how they truly are. In recent years, especially, the gap between what consumers say they’re feeling and how they’re actually spending their money has been widening.
So this sour January mood might not translate into less spending. A separate survey from the University of Michigan that emphasizes folks’ views about their personal finances hit a five-month high in January.
That might be why Wall Street was so unbothered by the confidence reading Tuesday. US stocks hit record highs thanks to plenty of optimism about corporate earnings.
