DOLLAR FALLS TO FOUR-MONTH LOWS ON UNCERTAINTY OVER TARIFFS, THE FED, AND SHUTDOWN THREAT

In the video, Powell revealed the Fed recently received grand jury subpoenas related to testimony he gave to the Senate last year about renovation cost overruns of the Fed headquarters building in Washington, D.C. The chairman said the inquiry was a pretext to pressure him to lower interest rates, threatening the independence of the Fed.

The video was particularly surprising since Powell has avoided confrontation with the president. Powell has worked to deflect questions about Trump at press conferences but has affirmed the independence of the Fed. It is unclear if he will go into any further detail about the investigation or his thoughts on the matter when pressed on Wednesday.

“I think that what he does, that he’s good at, is he won’t move from the script, so I don’t think he’ll say anything new,” Desmond Lachman, a senior fellow at the American Enterprise Institute, told the Washington Examiner.

And while he likely won’t address the matter in his prepared remarks, Powell will be asked about it. Lachman said he will likely stick to restating what he said in the video, which is that the investigation isn’t about the Fed headquarters renovations but rather disagreements on interest rate policy.

Mark Hamrick, senior economic analyst at Bankrate, predicted that Powell will probably keep details of the investigation “pretty close to the vest” on Wednesday.

“I think he probably feels like he can leave that sleeping dog alone for a while, and I can imagine that he would say something along the lines of, ‘Our focus here is really on our meeting on monetary policy,’” Hamrick said.

And on the monetary policy front, the Fed is all but certain to hold its rate target steady at a range from 3.50% to 3.75%. Ahead of the meeting, investors assessed less than 3% odds of a cut, according to CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed.

That is in big part because inflation is still too high and has remained stubbornly sticky, despite some modest declines over the past year. The Fed’s goal is 2% long-run inflation.

Inflation rose 2.7% the year ending in December, the Bureau of Labor Statistics reported this month in an update to the most closely watched inflation gauge, the consumer price index.

And, in the personal consumption expenditures index, which is the Fed’s preferred inflation gauge, inflation rose one-tenth of a percentage point to 2.8% for the year ending in November 2025.

At the same time, the Fed has a dual mandate — not only keeping inflation in check but also ensuring that the labor market is stable and that unemployment doesn’t start to take off. It typically lowers rates when unemployment is rising in order to spur more borrowing and spending to keep economic activity high.

That tension has made charting monetary policy tricky for the Fed this past year, because there have been some indications of a softening labor market at the same time that inflation has been running too hot.

The economy added 50,000 jobs in December, and the unemployment rate fell to 4.4%. But with revisions to the numbers for October and November, the three-month moving average of job gains was minus-22,000 in December. Still, private-sector job growth has been better, averaging nearly 30,000 over the past three months.

But while there has been softening, the labor market — for now — is at least relatively stable. Plus, economic growth has far outpaced predictions from economists, showing resiliency.

“The numbers wouldn’t justify a cut, [with] inflation still staying high, and the economy has been pretty strong, and the labor market is not weakening sufficiently for them to cut,” Lachman said.

Another dynamic hanging over Wednesday’s meeting is that this is one of the last meetings that Powell will oversee as Fed chairman. His term is up in May, and Trump has been weighing a number of candidates to replace him.

One question Powell might face, in light of the investigation, is whether he will break tradition and opt to stay on the Fed’s Board of Governors once his chairmanship is up. Powell’s term on the Fed board doesn’t end until 2028. Traditionally, Fed chairs retire from the board after their term is up, allowing the president to fill the vacancy.

DOJ INVESTIGATION COULD PUSH POWELL TO HOLD ON TO HIS SEAT AT FED

That perceived threat could prompt Powell to break precedent and remain on the board, according to some.

“I certainly think the Department of Justice action has increased the possibility that Powell would make the judgment that it’s best for him to stay on,” Dennis Lockhart, former president of the Federal Reserve Bank of Atlanta, recently told the Washington Examiner.