How Trump Is Overshadowing The Fed Rate Decision

Federal Reserve Chair Jerome Powell has simultaneously become one of the most and least interesting people in the news.

The institution he leads is facing relentless attacks from President Donald Trump, whose administration has launched a criminal investigation into Powell’s statements to Congress about renovations to the Fed’s headquarters. Powell’s colleague on the Fed board, Lisa Cook, is awaiting a Supreme Court decision about whether the president can fire her — a verdict that could have profound implications for the job security of future Fed chairs.

And finally, Trump is expected to soon announce his pick for Powell’s successor, making the Fed chief effectively a lame duck. The likelihood that the next chair will have a different approach to policy is high, meaning that Powell — who commands the world’s attention when he speaks after rate-setting meetings — can give only so much insight into what’s coming because it’s now largely out of his hands.

All of this helps explain why the Fed’s interest rate decision on Wednesday is set to be a nonevent. Central bank officials are widely expected to pause their campaign of rate cuts as they assess the effects of the three that they’ve already made.

“They’re not just gonna not do anything,” Vincent Reinhart, chief economist at BNY Investments and a former senior Fed staffer, said of the central bank’s meeting today. “They’re [also] gonna not tell you anything.”

It’s the new reality for the world’s most important central bank: Trump’s aggressive moves against the Fed, as well as in other areas such as trade and energy policy, are dominating investor attention much more than is the Fed itself. That’s particularly true, given that his economy remained resilient over the course of 2025, even as it faces the risks of both higher inflation and higher unemployment.

For markets, the prospect of trying to price in future policy actions has become increasingly difficult under a president who thrives on unpredictability. Powell is much easier for them to read, since he basically follows the same data as Wall Street does.

Even when it comes to interest rates, which are squarely in the central bank’s wheelhouse, the president is playing a more active role in driving long-term yields.

Guy LeBas, chief fixed income strategist at Janney Capital Management, said the administration’s move to buy mortgage-backed securities probably lowered mortgage rates by about a tenth of a percentage point, while threatening tariffs on Europe likely pushed them back up by a larger amount.

“So the small, concentrated things the administration is doing to lower financing costs are more than offset by the large-scale things they’re doing that affect tariffs and global trade,” he said.

To wit: Rates on U.S. government debt maturing in 10 years were at 4.24 percent on Tuesday, a yield that has bounced around but is not materially different from where it stood in early and mid-2025, despite three rate cuts in the meantime.

“The idea that federal policies affect interest rates isn’t new,” White House spokesperson Kush Desai said in a statement to POLITICO, adding that former President Joe Biden’s actions “drove both inflation and long-term inflation rates up.”

“The Trump administration’s policies, on the other hand, are accelerating economic growth, cooling inflation, and narrowing the fiscal deficit — paving the way for the 10-year yields to decline by over 30 basis points in the past year alone,” Desai added. (The 10-year stood at 4.53 percent on Jan. 27, 2025).

Trump’s long-awaited announcement on his pick for Fed chair will help provide a clearer picture of what might be ahead. But LeBas acknowledged that the biggest source of uncertainty is what the person’s relationship with the president will be like. That’s because all of the candidates have argued for lower rates this year.

More specifically, Wall Street is watching closely to see how the nature of the Fed’s autonomy might change.

“I have a nice, traditional macro forecast of what monetary policy does, and then at some point in the future, it becomes a forecast of the political economy,” Reinhart said. “It’s, gee, what will the instructions from the White House be, and how low can [rates] go? And that’s not particularly satisfying. It’s also not the comparative advantage of most economists to figure out when politics suddenly becomes what’s really important.”