The Federal Reserve is widely expected to keep interest rates unchanged on Wednesday, bringing a pause to a series of three consecutive 25-basis-point cuts. Recent economic data has complicated the outlook for policymakers, with inflation proving stubborn while labor market indicators send mixed signals.
After reducing the federal funds rate by a total of 75 basis points toward the end of last year, Fed Chair Jerome Powell said in December that policy rates were now within a broad range of estimates for their neutral level. He added that the central bank was in a strong position to wait and assess how economic conditions develop.
Glen Smith, chief investment officer at GDS Wealth Management, said further easing is difficult to justify at this stage. Improving labor data, stable inflation trends, and the recent run of rate cuts all support a cautious, wait-and-see approach, he noted.
Smith expects only one additional rate cut in 2026, likely in the second half of the year. He added that the timing could coincide with the tenure of a new Fed chair, introducing another layer of uncertainty for markets.
Fed independence under scrutiny
Beyond the rate decision itself, investor attention is firmly on whether Powell will address concerns about the Fed’s independence. Earlier this month, the US Department of Justice issued grand jury subpoenas related to renovations at a Federal Reserve office building.
In a rare public response, Powell suggested the investigation was retaliation for the Fed’s decision to set policy based on its assessment of what best serves the public interest, rather than aligning with political preferences. President Donald Trump has repeatedly criticized Powell in the past, accusing him of keeping rates too high and even threatening to remove him from office.
According to Smith, this will be the first Fed press conference since news of the DOJ investigation emerged, making it likely that Powell will address questions around the probe and the broader issue of central bank independence.
For Wall Street, the rate decision itself is largely priced in. Instead, markets are expected to react more to Powell’s comments during the post-meeting press conference.
At midday trading, the S&P 500 and the Dow Jones Industrial Average were flat, while the Nasdaq Composite edged slightly higher. The dollar also stabilized after snapping a four-day losing streak, following recent pressure linked partly to concerns over Fed independence.
Popular exchange-traded funds tracking the S&P 500 include SPDR S&P 500 ETF Trust, Vanguard S&P 500 ETF, and iShares Core S&P 500 ETF.
