Fed Expected To Hold Interest Rates Today As Trump Pressures Central Bank

Core Viewpoint - The Federal Reserve is expected to pause interest rate cuts, with some officials forecasting potential cuts later in the year amid concerns about the central bank's independence from the Trump administration [1][7]. Group 1: Interest Rate Expectations - Traders have assigned a 2.8% probability of the Federal Reserve lowering interest rates from the current 3.5% to 3.75% range by a quarter point [1]. - Betting markets show a strong preference for no change in interest rates, with Polymarket and Kalshi indicating 99% odds of rates remaining between 3.5% and 3.75% [2]. - The Fed's "dot plot" suggests only one quarter-point cut is expected in 2026, with a potential cut in 2027, while current odds for cuts later this year are 17.4% in March, 28.1% in April, and 46.8% in June [3]. Group 2: Federal Reserve Officials' Stance - Kansas City Fed President Jeff Schmid advocates for holding the benchmark rate to achieve a 2% inflation target, emphasizing a modestly restrictive monetary policy [2]. - Chicago Fed President Austan Goolsbee, who previously dissented on rate cuts, also supports maintaining current rates to address inflation [2]. - Philadelphia Fed President Anna Paulson is comfortable with holding rates steady, believing a restrictive policy will aid in lowering inflation [2]. Group 3: Potential Leadership Changes - President Trump indicated he would announce a nominee to succeed Jerome Powell soon, with speculation that the announcement could coincide with the FOMC's January meeting [4][6]. - Possible candidates to replace Powell include Kevin Warsh, Christopher Waller, Kevin Hassett, and Rick Rieder, with Rieder currently favored at 40% odds [6]. Group 4: Context of Federal Reserve's Independence - The Federal Reserve has resisted Trump's calls for more aggressive rate cuts, with Powell facing scrutiny and threats of a criminal indictment related to his Senate testimony [7]. - The investigation into Powell has been criticized as an attempt to undermine the Fed's independence, despite the White House asserting Trump's support for the Fed's political autonomy [7].