The Federal Reserve Will Decide Whether to Cut Rates Wednesday. Here's What You Need to Know

The Federal Reserve will likely pause its interest rate cuts on Wednesday, but analysts are watching for any hints that they will resume later this year.

The Fed, which kicks off its two-day meeting on Tuesday, lowered interest rates three times in late 2025 to boost a weakening job market. Now, however, the labor market seems to be stabilizing, and strong consumer spending keeps fueling economic growth.

Markets are forecasting a delay in any potential 2026 cuts—and will look to Fed Chair Jerome Powell for validation of those views. Powell will hold a press conference at 2:30 p.m. ET on Wednesday,  when reporters are sure to ask him about President Donald Trump’s attacks on the Fed.

Powell isn’t expected to say much new on that front. But analysts also don’t expect him to say much on the Fed’s rate plans for the year either. He might offer a slight indication that the Fed may cut rates again, but little guidance as to  when. 

“While Powell is likely to sound noncommittal around near-term rate cuts, we expect him to remind market participants that the median Fed official still looks for easing this year,” wrote Oscar Munoz, chief U.S. macro strategist at TD Securities. “The path of least resistance continues to be further rate cuts.”

The Fed last year lowered its benchmark federal funds rate to between 3.5% to 3.75%, continuing to bring borrowing costs down after the inflation spike in 2021 and 2022 forced the Fed to sharply raise rates.

Hawks Versus Doves

It wasn’t unanimous in doing so. The Fed’s 19-member committee was unusually split in 2025, with dissents from hawks arguing against rate cuts and from doves seeking more aggressive action.

Recent economic data have “tilted a bit more toward the hawks,” wrote Scott Anderson, BMO’s chief U.S. economist, which bolsters the case for Wednesday’s pause in rate cuts. Employment growth remained sluggish in December with some 50,000 jobs added, but the unemployment rate slipped to 4.4%. 

Last year’s government shutdown ended up having “no visible impact on real consumer spending growth,” Anderson wrote. Retail sales rose sharply before the holidays, which has economists hiking? their GDP projections.

“Expect Powell to emphasize that policy remains in a ‘good place’ right now, with little urgency to act in either direction,” Anderson wrote.

Investors have reacted to the sunnier prospects by delaying when they expect the Fed’s next cut. 

A March rate cut seemed like a coin flip a month ago, but traders now see only a 16% chance of that, according to the CME Group’s FedWatch tool, which uses futures markets pricing to determine probabilities. Some economists now anticipate the Fed may not cut rates at all in 2026—or that it will  at least wait until the second half of the year.

A Data Surprise

“There is no hurry to act,” Bank of America economist Aditya Bhave wrote.

Even so, the shift to more hawkish market pricing “creates risks of a dovish surprise,” Bhave wrote, if Powell’s remarks lead investors to swing back to betting on more cuts. 

Bhave flagged a key question for Powell’s press conference: how will he frame December’s lower unemployment rate and its impacts on Fed policy? 

“Markets will be sensitive to the extent to which Powell leans into the decline … or downplays it as just a single month’s worth of data,” Bhave wrote.

January’s jobs report, which is due out on Feb. 6, will provide more clarity on whether markets’ more hawkish expectations for the Fed will prove right.

“It would take only one bad labor market report to prompt a swift reappraisal,” wrote Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics. “Still, we concede that the path to a March easing has narrowed.”

Politics Takes Center Stage

All the economic questions, however, may be overshadowed by President Donald Trump’s attempts to reshape the central bank.

“Powell’s press conference might be dominated by questions about politics rather than policy,” BofA’s Bhave wrote.

Trump has repeatedly slammed the Fed for not cutting interest rates more quickly, arguing that high borrowing costs hold back the economy. 

The tensions reached a new high this month, with Powell pushing back on Department of Justice subpoenas relating to the Fed’s headquarters renovations. In a video response, Powell said he kept lawmakers informed about the HQ costs and that they were “pretexts” for Trump to intimidate the Fed into slashing rates.

Trump has also sought to fire Fed Governor Lisa Cook, citing still-unresolved allegations of mortgage fraud, which would open up a seat at the Fed for Trump to fill. In a hearing last week, Supreme Court officials were skeptical over whether he’s able to fire Cook and raised concerns over the Fed losing its independence to make policy decisions. Powell attended the Supreme Court hearing.

Having weighed in already, it’s not clear whether Powell will say more on the topic on Wednesday. 

He may also stay mum on whether he’d remain on the Fed board past May. His four-year term as Fed chair expires then, but he’d still be able to vote on the Fed as a regular board member until 2028.

Powell’s recent pushback against Trump’s attacks could make him more likely to stay on the Fed board once his leadership role expires, according to Larry Meyer, a former Fed governor who’s the co-founder of Monetary Policy Analytics. That would give Trump one fewer opening on the Fed for now.

Still, Meyer added, Powell “does not owe an answer on this just yet.”