Will the Fed bend to Trump’s pressure?

Tomorrow, the Federal Reserve will announce its first interest rate decision of the year. The base-case scenario is that, despite ongoing attacks from Donald Trump on Fed Chair Jerome Powell, the regulator will leave rates unchanged at 3.50–3.75%. Not out of defiance, but because the macro data simply do not yet justify easing.

Starting with inflation, in November, PCE was 0.2% month-on-month and 2.7% year-on-year, while core PCE was 0.2% month-on-month and 2.8% year-on-year. The Fed’s preferred measure, services excluding energy and housing, shows no slowdown and is still at 3.3% year-on-year. Thus, the 2% target is still out of reach.

Although disposable income growth is slowing (+0.3% month-on-month, +4.7% year-on-year), consumer spending remains robust. Whether this strength is driven by front-loaded purchases, unusually large tax refunds, or other factors, the key point is that it keeps inflation from falling back to the Fed's goal.

As for the labor market, on one hand, the unemployment rate came in at 4.4%, slightly better than the expected 4.5%. On the other hand, nonfarm payrolls rose by just 50,000, well below the 66,000 expected. Again, this doesn’t give the Fed much reason to rush into rate cuts — despite pressure from the White House.

The market has already priced in this possibility, so keeping rates unchanged is unlikely to affect the S&P 500, the dollar index, or gold prices.  What matters much more is the Fed's future guidance. If Powell ultimately delivers hawkish remarks, that could support the dollar but also spook markets a bit.

A dovish signal, however, might not be seen positively by the market, as it could be interpreted as Powell yielding to Trump’s pressure. This would raise uncomfortable questions about Fed independence and potentially undermine confidence in both the dollar and U.S. Treasuries.

P.S. After the Fed decision, earnings from Microsoft and Meta will follow, with Apple reporting on Thursday. The core question for investors is whether current valuations are justified. Ultimately, this comes down to whether massive AI investments are delivering real returns — or burning cash and forcing a repricing.

If Big Tech disappoints, the impact would almost certainly spill over to the broader market. Even if Powell hints at a March rate cut, it probably wouldn’t be enough to counter that downside.