Markets Watch Fed Leadership Drama While Rate Cut Expectations Stay on Hold
Late Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas linked to testimony given by Chair Jerome Powell to the Senate Banking Committee last June regarding a multi year renovation of historic Fed office buildings. This development added to uncertainty around the future leadership and independence of the central bank, an issue already in focus as President Trump moves closer to naming the next Fed chair.
Chair Powell responded publicly over the weekend, saying he has deep respect for the rule of law and accountability, and stressed that no one is above the law. He said the Fed made every effort through testimony and public disclosures to keep Congress informed about the renovation project, and argued that the threat of criminal charges is not really about the buildings or congressional oversight. Powell said the real issue is whether the Federal Reserve will be able to continue setting interest rates based on evidence and economic conditions rather than political pressure or intimidation. He added that he has served under four administrations from both parties, has always acted without political fear or favor, and intends to continue carrying out the mandate of price stability and maximum employment with integrity and a commitment to serving the American people.
From a policy perspective, rate expectations remain clearly tilted toward patience. As of January 11, 2026, markets are assigning only a 4.4% chance of a rate cut at the next meeting. The first full quarter point cut is not priced in until the June 17 FOMC meeting, with another cut mostly expected by the October 28 meeting and fully priced in by December 9. This outlook continues to support the US dollar by keeping US yields relatively attractive compared with those in other major economies.
Inflation expectations have changed little. Economists expect core consumer price inflation to rise 2.7% year on year in December, slightly above the 2.6% pace seen in November, which was the lowest since early 2021. On a monthly basis, both headline and core prices are expected to increase 0.3%. Analysts have noted that the November figures were affected by problems collecting prices in October, particularly for rent, which likely pushed inflation lower than underlying trends. The December report due Tuesday could reverse some of that distortion, but is still viewed as consistent with gradually easing price pressures.
For gold, political and institutional uncertainty has provided underlying support. The investigation involving the Fed chair, combined with comments from Trump that the US is reviewing military options on Iran, has kept safe haven demand alive. At the same time, firm US yields and a resilient dollar have limited upside, leaving gold supported but largely range bound.
With no meaningful monetary policy affecting data scheduled in today’s economic calendar, market focus is likely to remain firmly on the political developments surrounding the Federal Reserve, evolving expectations for US interest rates, and the broader risk backdrop shaped by geopolitical tension.
Analysis by Coach Angel
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