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Fed's fight with DOJ could hurt prospects for more interest rate cuts
The Federal Reserve is less likely to make cuts this year as it grapples with a criminal probe, analysts say. That could undermine one of Trump's goals.
Fed's fight with DOJ could hurt prospects for more interest rate cuts www.nbcnews.com/business/eco...
— (@azi7.bsky.social) 2026-01-12T17:19:37.934Z
https://www.nbcnews.com/business/economy/trump-powell-fed-dollar-interest-rates-rcna253536
The Justice Department’s criminal investigation of the Federal Reserve and Chair Jerome Powell’s willingness to fight back are already shaking Wall Street. But Main Street could feel shock waves, too.
The legal showdown makes it less likely that the Fed will lower interest rates this year, according to several analysts. Lower rates could translate into lower borrowing costs for consumers and businesses, helping support economic growth and the labor market.
Powell’s term as chair ends in May. But Friday’s subpoenas to the Fed make it “more likely that Powell will stay on as a governor to help protect the Fed after his term as chair ends,” Krishna Guha, vice chairman at financial firm Evercore ISI, wrote in a note Sunday.
Powell could potentially remain chair for longer than expected, too, as Sens. Thom Tillis, R-N.C., and Elizabeth Warren, D-Mass., both said the Senate Banking Committee should block votes on any Trump administration nominees to the Fed as the investigation plays out.
It’s also more likely that a few other members of the board who were appointed during the Biden administration will remain, too. If this happens, the eventual makeup of the committee that sets interests, Guha wrote, “will almost certainly result in fewer cuts than would otherwise have been the case.”
Analysts with JPMorgan went further. "We now expect the Fed to stay on hold throughout 2026," they wrote in a note to investors Monday.
The legal showdown makes it less likely that the Fed will lower interest rates this year, according to several analysts. Lower rates could translate into lower borrowing costs for consumers and businesses, helping support economic growth and the labor market.
Powell’s term as chair ends in May. But Friday’s subpoenas to the Fed make it “more likely that Powell will stay on as a governor to help protect the Fed after his term as chair ends,” Krishna Guha, vice chairman at financial firm Evercore ISI, wrote in a note Sunday.
Powell could potentially remain chair for longer than expected, too, as Sens. Thom Tillis, R-N.C., and Elizabeth Warren, D-Mass., both said the Senate Banking Committee should block votes on any Trump administration nominees to the Fed as the investigation plays out.
It’s also more likely that a few other members of the board who were appointed during the Biden administration will remain, too. If this happens, the eventual makeup of the committee that sets interests, Guha wrote, “will almost certainly result in fewer cuts than would otherwise have been the case.”
Analysts with JPMorgan went further. "We now expect the Fed to stay on hold throughout 2026," they wrote in a note to investors Monday.