The US Federal Reserve is expected to maintain its benchmark interest rate unchanged through the current quarter and potentially until Chair Jerome Powell's term ends in May, marking a notable shift in economic expectations. According to a Reuters survey of 100 economists conducted between January 16-21, this represents a significant change from predictions made just a month ago when most economists had anticipated at least one rate cut by March.

Current Rate Expectations

All surveyed economists expect the Federal Reserve to hold rates steady at the upcoming January 27-28 policy meeting. The current rate environment and economist predictions show a clear trend toward maintaining the status quo.

The reassessment reflects growing confidence that the US economy will continue expanding at a solid pace, reducing the urgency for near-term monetary easing even as inflation remains above the Fed's 2% target.

Economic Growth Projections

The US economy continues to outperform expectations, with robust growth figures supporting the case for maintaining current interest rates. After growing at an annualized pace of 4.3% in the third quarter, economic expansion projections have been revised upward.

Some economists anticipate even stronger momentum, driven by increased investment in artificial intelligence and the impact of recent fiscal measures, including tax cuts. These factors are expected to provide a meaningful boost to GDP growth this year.

Inflation and Employment Outlook

Despite strong economic growth, inflation concerns persist as a key factor in Federal Reserve decision-making. The Personal Consumption Expenditures index, the Fed's preferred inflation gauge, is expected to remain above the 2% target for the rest of this year and average above that level through 2028.

The unemployment rate is forecast to remain relatively stable, averaging around 4.5% this year, suggesting continued resilience in the US labor market even as monetary policy stays restrictive.

Political Pressures and Leadership Transition

Concerns are rising in financial markets and policymaking circles over political pressure on the Federal Reserve's independence. President Donald Trump has repeatedly criticized Powell for not cutting rates more aggressively, while the Justice Department has threatened a criminal investigation into Powell related to renovations at the Federal Reserve's headquarters.

Additionally, Trump's attempt to remove Fed Governor Lisa Cook is awaiting a Supreme Court hearing. Treasury Secretary Scott Bessent has indicated that President Trump could announce the next Fed chair as early as next week, adding to uncertainty surrounding the leadership transition.

Future Policy Direction

While there is no clear consensus on policy beyond the near term, a slight majority of respondents expect rate cuts to resume after Powell's tenure concludes in May. Most economists still anticipate at least two rate cuts later in the year, though political scrutiny surrounding the leadership transition could complicate efforts to steer policy in a more accommodative direction.

The lack of unity among policymakers has added to uncertainty over the future rate path, with economists highlighting that political pressures may influence the timing and magnitude of future monetary policy adjustments.

Federal Reserve Chair Jerome Powell will attend the Supreme Court's oral argument on Wednesday regarding President Trump's attempt to fire Fed Governor Lisa Cook, marking an unprecedented show of support by the central bank chair.

The Supreme Court is examining whether Trump can remove Cook from her position, following his announcement in late August that he would fire her. This represents an unprecedented attempt to remove one of the seven members of the Fed's governing board.

Powell's Public Support

Powell's decision to attend the Wednesday session represents a significant departure from his previous approach. According to sources familiar with the matter, this marks a much more public show of support than the Fed chair has previously demonstrated for Cook.

The attendance follows Powell's announcement that the Trump administration has sent subpoenas to the Fed, threatening an unprecedented criminal indictment of the Fed Chair. Powell, who was appointed to his position by Trump in 2018, appears to be shifting from last year's more subdued response to Trump's attacks on the central bank toward a more public confrontation.

Key Details of the Case

Interest Rate Dispute

Powell issued a video statement on January 11th condemning the subpoenas as "pretexts" for Trump's efforts to force sharp cuts to the Fed's key interest rate. Powell oversaw three rate cuts late last year, lowering the rate to approximately 3.60%. However, Trump has argued the rate should be as low as 1.00%, a position few economists support.

Legal Proceedings and Implications

The Trump administration has accused Cook of mortgage fraud, allegations that Cook has denied. No charges have been filed against her. Cook has sued to retain her position, and the Supreme Court issued a brief order on October 1st allowing her to remain on the board while they consider her case.

If Trump succeeds in removing Cook, he could appoint another person to fill her position. This would give his appointees a majority on the Fed's board, potentially providing greater influence over the central bank's decisions regarding interest rates and bank regulation.