By Andrew Moran
The Federal Reserve will make its first policy decision of the year on Jan. 28, and traders expect the central bank to leave interest rates unchanged.
Investors are penciling a 97 percent chance that monetary policymakers will keep the benchmark federal funds rate—a key rate that influences business and consumer borrowing costs—in a range of 3.5 percent to 3.75 percent, according to CME FedWatch Tool data.
This would be the first time since the summer that the institution has left rates steady.
Traders will instead parse through Fed Chair Jerome Powell’s comments during his post-meeting press conference, where he is expected to convey a wait-and-see policy approach.
“The Federal Reserve appears to be acting in a very data-dependent manner,” David Miller, senior portfolio manager at Catalyst Funds, said in a note emailed to The Epoch Times.
“Rate cuts, if they occur, are likely to be gradual and driven by clearer evidence of slowing growth, rather than a rapid return to target inflation. This supports a moderate for a longer rate backdrop.”
While the Fed has been in a weeks-long blackout period, officials will likely continue to monitor slowing employment conditions and determine whether inflation is approaching 2 percent.
Labor market data over the past month has been mixed.
The main source of information—the December nonfarm payrolls report—indicated that the economy added a smaller-than-expected 50,000 new jobs.
The unemployment rate dipped to 4.4 percent from 4.5 percent, while annual wage growth accelerated to 3.8 percent.
January’s data affirmed the low-fire, low-hire narrative that has been prevalent since the summer.
Layoffs have been tepid, with initial jobless claims hovering around a historically low 200,000.
Continuing unemployment claims have also slowed sharply to 1.84 million. Hiring has been anemic, but job postings have been steadily rising.
On the pricing front, the annual inflation rate remained at 2.7 percent to finish 2025.
Additionally, the Fed’s preferred inflation measure—the personal consumption expenditure (PCE) price index—edged up to 2.8 percent year over year.
However, with the U.S. economy expected to register more than 5 percent growth in the fourth quarter of 2025, and economic observers revising their forecasts for the year ahead higher, some believe the Fed does not need to be revving up its rate-cutting cycle.
“If GDP comes in anywhere near 5 percent for the quarter, as the Atlanta Fed has indicated, and even the administration has echoed that view, I think some investors would say that we don’t need to cut rates this year,” Ken Mahoney, CEO of Mahoney Asset Management, said in a note to The Epoch Times.
“If the economy is running hotter, we could see stronger earnings, and that’s probably more important than a quarter-point rate cut here or there.”
Futures market data suggest investors are not penciling the next quarter-point rate cut until June. Investors are also planning for two to three rate actions this year, compared to the Fed’s forecast of one.
DOJ Investigation
The policy path and economic forecasts may take a backseat to other events unfolding at the Fed.
Powell revealed earlier this month that the Department of Justice opened a criminal investigation into him, serving the central bank with grand jury subpoenas regarding renovations and his congressional testimony.
But he dismissed these as “pretexts,” arguing that it is about pressure over policy.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the president,” Powell said.
Jeanine Pirro, U.S. attorney for the District of Columbia, stated that the probe could have been avoided if the Fed had “just responded to our outreach.”
These developments will likely be a central theme during Powell’s press conference, says Jay Woods, chief market strategist at Freedom Capital Markets.
“The drama surrounding the Fed has more of a ‘Days of Our Lives’ feel about it than a true economic discussion about the future of the economy,” Woods said in a note emailed to The Epoch Times.
“The continued topic on the importance of Fed independence may be predominant at the press conference.”
The next personnel matter, Woods notes, is whether Powell remains in his role as a Fed voting member after his term as chairman ends in May.
President Donald Trump, in an interview with CNBC during his trip to Davos, Switzerland, expressed indifference if Powell stays at the institution.
“We live with the cards you’re dealt,” Trump said. “If that happens, his life won’t be very, very happy, I don’t think, by doing it. I think he wants to get out. He has not done a good job.”
The president could also soon reveal his pick to replace Powell as head of the Federal Reserve.
Prediction markets show BlackRock executive Rick Rieder has catapulted to the top, with odds hitting 47 percent that he will become the new Fed chairman.
Former Fed Gov. Kevin Warsh sits in second place with 28 percent, according to Polymarket.
