What to expect from January's Fed meeting as Powell faces looming DOJ probe

• Fed expected to hold interest rates steady amid stubborn inflation and disappointing jobs numbers.
• Powell is facing a DOJ investigation and rising political pressure from the White House.
• Trump is expected to pick Powell's successor soon, as the chair's term ends in May.

The Federal Reserve will make its first rate decision of the year on Wednesday — and all eyes are on Chair Jerome Powell.

The central bank's leaders have a near-total chance of holding rates steady this week, according to market-based projections from CME FedWatch. After three cuts in 2025, the Fed has penciled in one rate cut for the new year. In the long run, these rate decisions will affect the job market, consumer prices, and corporate America.

But there's a shadow over January's Fed meeting: The Department of Justice recently launched a probe into Powell's handling of renovations to the central bank's buildings. The Trump administration alleges that the chair gave false testimony at a June Congressional appearance, though Powell said the move should "be seen in the broader context of the administration's threats and ongoing pressure" on the Fed.

"This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether instead monetary policy will be directed by political pressure or intimidation," he said in a video statement released January 11.

Fed leaders will likely hold rates steady

Fed decisions impact mortgage and credit card rates, auto loans, inflation, and labor market churn over time. A slow but not catastrophically weak job market, combined with higher-than-ideal but relatively tame inflation, will probably mean a pause in rate cuts for now.

"There's little chance the Fed will vote to cut rates this week, as the data in-hand doesn't justify it," said NerdWallet's senior economist Elizabeth Renter, adding, "The Fed's monetary policy job is a balancing act and their decision to keep rates as-is indicates the risks to either side of their dual mandate are relatively equal."

The central bank's dual mandate — to keep prices stable and the job market strong — has been tricky to balance lately. The US added fewer jobs than expected in December, the unemployment rate is hovering above 4%, and the inflation rate remained at 2.7%. If Fed leaders opt to hold rates steady rather than cut, it will be good news for inflation, at the risk of slowing down an already-sluggish jobs landscape.

For consumers, a hold means that interest rates for homes, cars, and credit cards would largely remain unchanged. The Fed also hopes to push inflation closer to its 2% goal. For job seekers, however, still-high borrowing costs could push companies toward layoffs or hiring freezes.

DOJ probe jeopardizes the search for Powell's successor

The Fed has made more headlines than usual this month. Powell announced grand jury subpoenas from the Trump administration through a video message posted online. And Governor Lisa Cook's case has reached the Supreme Court, following accusations of mortgage fraud from Trump.

The Powell probe has raised alarm about Fed independence with politicians, economists, and business leaders. North Carolina Republican Thom Tillis and other congressional leaders said they will now oppose all nominees to the Fed chair role from the Trump administration.

With Powell's term up in May, Trump is set to choose a successor as soon as this week. Frontrunners include Trump's economic advisor Kevin Hassett, Fed Governor Christopher Waller, former Fed Governor Kevin Warsh, and Chief Investment Officer of global fixed income at BlackRock Rick Rieder.

The president has been vocal in his desire for lower interest rates and hopes the next Fed chair will consult with him more closely on policy decisions.

"The hope is that whoever takes Powell's role next will be similarly data driven and level headed," Renter said.