Fed Pauses Rate Cuts Amid Political Pressure, Powell Defends Independence

WASHINGTON (Azat TV) – The Federal Reserve on Wednesday, January 28, 2026, opted to hold its benchmark interest rate steady at a range of 3.5% to 3.75%, marking the first pause in its rate-cutting cycle since July of last year. This decision, widely anticipated by Wall Street, comes as the central bank grapples with persistent political pressure from the Trump administration, including an ongoing criminal probe targeting Chair Jerome Powell, and seeks to reaffirm its independence while navigating a US economy described as growing at a “solid pace.”

Navigating Political Headwinds and Independence

The Federal Reserve’s decision was made in an environment of unprecedented political scrutiny. Chair Jerome Powell, whose term concludes in May, has been at the forefront of defending the central bank’s autonomy. Earlier this month, Powell made an extraordinary public statement, calling a criminal probe against him a “pretext” intended to intimidate the Fed into cutting rates to President Donald Trump’s liking. Powell reiterated Wednesday his and his colleagues’ “strong commitment” to maintaining the central bank’s independence.

The challenges to the Fed’s independence are multifaceted. Powell faced criticism from Treasury Secretary Scott Bessent for attending oral arguments at the Supreme Court last week. The case, which Powell deemed “perhaps the most important legal case in the Fed’s 113-year history,” revolves around President Trump’s legal authority to fire Fed Governor Lisa Cook over alleged, but unproven, mortgage fraud. Powell defended his attendance, stating it would be “hard to explain why I didn’t attend.”

Adding to the political complexity, President Trump has openly indicated his preference for a successor to Powell who is willing to cut rates. Two governors, Stephen Miran and Christopher Waller, dissented from Wednesday’s decision, preferring a quarter-point cut. Miran, who is Trump’s top economic adviser, has voted against the committee for the fourth consecutive meeting, while Waller is on Trump’s shortlist of potential replacements for Powell. When asked for advice to his successor, Powell stated, “Don’t get pulled in to elected politics,” while also emphasizing the need for accountability to Congress.

Economic Picture: ‘Solid Pace’ Amidst Inflation

The Fed’s decision to hold rates steady was driven by a combination of factors reflecting its dual mandate of maximizing employment and maintaining price stability. Officials cited three primary reasons for the pause: the time lag for previous rate cuts to fully impact the economy, inflation remaining “somewhat elevated,” and a robust economy with a stabilizing job market.

The central bank’s post-meeting statement upgraded its description of economic activity from a “moderate pace” in December to a “solid pace.” This optimism was supported by third-quarter gross domestic product (GDP) growth and expectations for strong fourth-quarter growth. Despite tepid job gains of just 50,000 workers last month, the unemployment rate fell to 4.4% in December from 4.5% the prior month, signaling stabilization in the labor market. Powell cautioned not to “go too far with that” interpretation, but the overall tone from officials was upbeat.

On the inflation front, Powell indicated that the bulk of the passthrough from higher tariffs over the past year to consumer prices is nearing completion. He expects tariff effects on goods prices to peak and then decline, assuming no new major tariff increases. However, consumer confidence hit its lowest level in over a decade in January, driven by concerns over geopolitical tensions, affordability, and the ongoing trade war, according to The Conference Board. Despite this, separate surveys suggest consumer spending might remain resilient.

Powell also highlighted persistent weakness in the housing market, contrasting it with resilient consumer spending and expanding business investment. However, signs of life are emerging, with mortgage rates near a three-year low. President Trump has recently announced initiatives to boost the housing sector, including an executive order to block large institutional investors from buying single-family homes and plans for Fannie Mae and Freddie Mac to purchase $200 billion in mortgage-backed securities, which have already spurred increased mortgage applications.

The Search for a Successor

With Jerome Powell’s term as Fed Chair expiring in May, the search for his successor is intensifying. President Trump has four nominees in mind, all of whom he expects to be proponents of rate cuts. Candidates include National Economic Council Director Kevin Hassett, former Fed Governor Kevin Warsh, Fed Governor Christopher Waller, and BlackRock’s chief bond investment manager, Rick Rieder.

While Hassett was long considered a frontrunner, Trump has recently indicated a reluctance to lose him from his current role. Momentum, however, appears to be building for Rick Rieder, who reportedly left a positive impression on Trump during a recent interview. Trump publicly described Rieder as “very impressive” during a CNBC interview from Davos.

Wall Street largely anticipated the Fed’s decision to hold rates steady, leading to a mixed reaction in US stocks, with the Dow, S&P 500, and Nasdaq showing only slight movements. The US dollar index saw gains, while Treasury yields were slightly higher. Analysts noted the Fed’s upgraded economic assessment as a key takeaway, signaling reduced urgency for immediate rate cuts.

The Federal Reserve’s decision to pause its rate-cutting cycle, while economically justified by a ‘solid’ growth outlook and persistent inflation, carries significant political weight. This meeting underscores the central bank’s deliberate effort to assert its independence against external pressures, setting a critical precedent for how monetary policy decisions will be navigated in an increasingly politicized landscape.