Fed Standoff: Powell Expected to Hold Rates as White House Pressure Mounts

Wall Street is bracing for a critical Federal Reserve meeting this week where policymakers are widely expected to keep the benchmark interest rate unchanged at 3.5%-3.75%. While the consensus points to a distinct pause in the easing cycle, the spotlight is firmly on the escalating tension between the central bank's independence and an increasingly aggressive White House.

The Consensus vs. The Shock Forecast

CME Group's FedWatch Tool indicates a near-zero probability of a rate cut this week. The prevailing market narrative, supported by banks like Goldman Sachs and Bank of America, forecasts that the Fed will resume cutting rates—potentially in June and September—as inflation eventually aligns with targets.

However, a sharp divergence has emerged. Macquarie has issued a contrarian warning: the Fed's next move might not be a cut, but a hike in Q4. Economists argue that the resilient labor market and a higher neutral rate environment suggest the economy is running too hot for further easing.

Political Heat and Inflationary Risks

The policy debate is complicated by external political factors. Reports indicate growing friction between the Trump administration and Chair Powell, with the Justice Department allegedly probing past construction projects as political leverage.

Concurrently, the administration's strategy featuring tax cuts and tariffs is stoking inflation fears. Analysts at T. Rowe Price and JPMorgan Asset Management warn that stimulus could force the Fed to abandon 2026 easing plans. This uncertainty has weighed on the US Dollar.

Key Market Data

• Benchmark Rate: Expected hold at 3.5%-3.75%
• US Breakeven Inflation: Two-year metric climbed from 2.25% to 2.68%
• Forecast Divergence: Consensus for June cuts vs. Macquarie's Q4 hike risk.