Fed to Hold Rates as Political Drama Intensifies

Nathaniel Wright

Central Bank

Remarks of Officials

Traders' Opinions

Stocks

Economic

Political

Daily News

Summary:

The Fed pauses rate cuts, but focus shifts to Powell's press conference to address a DOJ probe challenging central bank independence.

Why the Fed is Hitting the Brakes on Rate Cuts

The Federal Reserve is widely expected to keep its key policy rate steady on Wednesday, bringing a halt to three consecutive rate cuts of 25 basis points each. This decision comes as the central bank navigates a murky economic landscape, with persistent inflation and mixed signals from the labor market complicating its dual mandate.

After reducing the federal funds rate by 75 basis points late last year, Fed Chair Jerome Powell signaled in December that a pause was likely. He noted the policy rate was "now within a broad range of estimates of its neutral value," suggesting the central bank was "well positioned to wait to see how the economy evolves."

According to Glen Smith, chief investment officer at GDS Wealth Management, further rate cuts are not justified at this time. "It's prudent to now take a wait and see approach," Smith said, pointing to improving labor market data, stable inflation, and the simple fact that the Fed just completed a series of cuts.

Looking further ahead, Smith anticipates a cautious path. "We expect just one rate cut for 2026," he noted, adding that "the timing of this next rate cut is debatable, it will likely come towards the second half of the year, which will also be under the rein of a new Fed Chair."

Beyond Rates: Fed Independence Under Scrutiny

While the interest rate decision is largely a foregone conclusion, investors are laser-focused on another issue: the central bank's independence. All eyes will be on whether Powell addresses the Trump administration's investigation into the Fed.

Earlier this month, the U.S. Department of Justice served the central bank with grand jury subpoenas concerning the renovation of a Fed office building. In a highly unusual public response, Powell suggested the investigation was a form of punishment. He stated the Fed was being targeted for "setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President."

This development is the latest chapter in a long-running dispute between President Donald Trump and the Fed Chair. Trump has repeatedly and publicly ridiculed Powell for not lowering interest rates and has even threatened to fire him.

Powell's Press Conference: The Real Market Mover

For Wall Street, the interest rate announcement itself is already priced in. The main event will be Powell's press conference that follows the decision.

Analysts and traders will be listening for any commentary on the political pressures facing the institution. "This is the first Fed press conference since news came to light about a DOJ investigation into Powell," said GDS Wealth's Smith. "We expect Powell to address this during the press conference and broader questions about the Fed's independence."

Investors tracking the market's reaction can monitor several popular exchange-traded funds (ETFs) that follow the benchmark S&P 500 index, including:

• SPDR S&P 500 ETF Trust (SPY)

• Vanguard S&P 500 ETF (VOO)

• iShares Core S&P 500 ETF (IVV)

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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King Ten

Remarks of Officials

Economic

Forex

Political

Middle East Situation

A U.S. aircraft carrier group arrived in the Middle East on January 27, dramatically raising tensions as speculation over a potential strike against Iran intensifies. The military deployment comes as Tehran carries out a brutal crackdown on nationwide protests that rights organizations report have killed thousands.

This external pressure coincides with severe internal turmoil. Iran’s currency, the rial, plunged to a historic low against the U.S. dollar, trading at 1.5 million on the same day.

US "Armada" Signals Military and Diplomatic Pressure

U.S. President Donald Trump has publicly stated he "hopes" military action against Tehran will not be necessary. However, he has also dispatched what he termed an "armada" to the region, confirming that air strikes remain an option in response to the violent suppression of largely peaceful demonstrators.

In a January 26 interview with Axios, Trump described the situation with Iran as being "in flux." He confirmed that a strike group led by the USS Abraham Lincoln is now in Middle Eastern waters, according to U.S. Central Command.

Despite the military posturing, Trump suggested that Tehran is eager to negotiate. "They want to make a deal. I know so. They called on numerous occasions. They want to talk," he was quoted as saying.

Nationwide Protests Met with Deadly Force

The current wave of unrest began on December 28 among shopkeepers in Tehran's markets, who were initially angered by dire economic conditions. The protests quickly spread across the country, evolving into broader demonstrations against falling living standards and the suppression of freedoms.

The response from authorities has been violent. According to the U.S.-based rights organization HRANA, the confirmed death toll has reached 6,126, a figure that includes security forces. An additional 17,091 fatalities are still under investigation. Some unofficial estimates from media outlets, citing off-the-record officials, suggest the actual number could be several times higher.

Eyewitness accounts and verified reports indicate the crackdown reached its peak on January 8 and January 9, when security forces used live ammunition against demonstrators.

Currency Collapse and Soaring Inflation Fuel Unrest

The rial's dramatic fall is symptomatic of a broader economic crisis. The annual inflation rate stands at 44.6 percent, with food prices having surged by nearly 90 percent year-on-year. For years, Iran's economy has been strained by international sanctions and the consequences of the 12-day war with Israel last June.

Internet Blackout Masks Crackdown Amid Emerging Evidence

To control the flow of information, the Iranian government has imposed a weeks-long internet blackout. The watchdog group NetBlocks confirmed in a January 26 report that the shutdown continues, with only limited access reported intermittently. NetBlocks noted that authorities are tightening controls to prevent circumvention while using whitelisted accounts to promote the government's narrative.

An Iranian government spokesman claimed on January 27 that the internet was cut "to preserve human lives," without offering further explanation.

Despite the blackout, new evidence of the suppression continues to surface online. The Vahid Online channel published images reportedly from the city of Amol on the evening of January 9. The visuals appear to show uniformed government forces armed with Kalashnikov rifles firing directly at protesters, contradicting official claims that "terrorists," not state security agents, were responsible for the killings.

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

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Justin

Stocks

The S&P 500 crossed the 7,000 mark for the first time on Wednesday and the Nasdaq inched towards a fresh record, helped by gains in chip stocks, with investors gearing up for a Federal Reserve rate decision and quarterly earnings results of Big Tech companies.

The move through the psychological level underscored risk appetite tied to AI optimism and expectations for strong corporate results, which outweighed lingering geopolitical concerns.

"These big round numbers can be difficult psychological tests for the market. So certainly from a technical analysis perspective, we think it's a very positive sign," said Jeff Buchbinder, chief equity strategist for LPL Financial.

Tech stocks led gains as Nvidia climbed 1.8%, Intel jumped 9%, and Micron and Microchip Technology each gained over 4%. SK Hynix, a key Nvidia supplier, reported a record quarterly profit and ASML booked its highest ever fourth-quarter orders, igniting a tech rally from Europe to Asia.

The Philadelphia SE Semiconductor index rose 2.3%.

The Fed convenes later in the day for its rate decision, with policymakers widely expected to keep it unchanged at 3.5%–3.75%. Traders will watch out for the Fed's statement and Chair Jerome Powell's remarks, for clues on the future rate trajectory.

"We would expect any (Fed rate) cuts that come in 2026 to be accompanied by economic growth, that is certainly a key piece of our positive stock market outlook for 2026. We would argue that the earnings and AI investment is a bigger deal and should be the focus of investors more so than the Fed," Buchbinder added.

Wall Street has rebounded to trade higher, with attention shifting to the earnings story after U.S. President Donald Trump's threats to acquire Greenland had led to bouts of sell-offs earlier this month, sending safe-haven gold soaring.

At 09:32 a.m. ET, the Dow Jones Industrial Average rose 118.82 points, or 0.24%, to 49,122.23, the S&P 500 gained 22.45 points, or 0.32%, to 7,001.05 and the Nasdaq Composite gained 150.01 points, or 0.63%, to 23,967.11.

The U.S. central bank, which recently started receiving real-time data on the economy's health after a partial government shutdown last year, is navigating policy while peering through an increasingly politicized fog.

This meeting arrives in the backdrop of a Justice Department inquiry launched earlier this month involving Powell as well as Trump's hints that a successor will be named "soon".

The markets currently expect the first rate cut to come in June, according to CME's FedWatch tool.

"MAG 7" KICKS OFF EARNINGS

Meta , Microsoft and Tesla report after market close, kicking off the so-called "Magnificent Seven" earnings that have driven the AI trade, powering markets to record levels.

With lofty valuations driving rotation into undervalued areas of the market, the group's capital plans will be closely watched as investors question whether AI spending will drive returns.

Texas Instruments surged 6% after the analog chipmaker forecast first-quarter revenue and profit above Wall Street estimates. Starbucks jumped 6.7% after posting a bigger-than-expected increase in first-quarter comparable sales. AT&T climbed 4% after the U.S. carrier projected annual profit above market expectations.

In industrials, GE Vernova raised its annual revenue forecast, shares rose 2%. Textron fell 6.2% after guiding fiscal profit below estimates, while Otis dropped 5% after fourth-quarter revenue missed expectations.

Meta and Microsoft were flat, while Tesla gained 0.5%. Bellwether IBM , also due to report after the market closes, was flat.

Seagate Technology jumped 14.5% after it forecast third-quarter revenue and profit above Wall Street expectations. Rival Western Digital rose 7.7%.

Source: TradingView

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Adam

Commodity

Oil hit a fresh four-month high after President Trump threatened another attack on Iran, urging Tehran to negotiate a deal.

“Hopefully Iran will quickly ‘Come to the Table’ and negotiate a fair and equitable deal,” Trump said in a post on his Truth Social network, adding that “the next attack will be far worse!” than the one that took place last year.

The potential risk to Iranian supplies has injected a premium into oil prices and led futures to start the year on a strong footing, up more than 10% this month, despite forecasts for a glut. That has also kept the cost of bullish options high relative to bearish ones.

Brent futures reached $68.19 a barrel after Trump’s post, the highest level since the end of September, extending a 3% jump in the previous session.

Trump had already reiterated on Tuesday that a “big armada” was headed to the Middle East, adding that hopefully the US wouldn’t have to use it. On Wednesday, he said the fleet is larger than the one sent to Venezuela, where Nicolas Maduro was deposed earlier this year.

Trump’s focus on Iran followed the Islamic regime’s deadly crackdown on protests against the government of Ayatollah Ali Khamenei.

There’s already been regional reaction to Trump’s signals over recent days. The Iranian and Qatari foreign ministers stressed the need to continue diplomatic efforts to reduce tensions, while Saudi Arabia’s Crown Prince said the Kingdom’s land won’t be used to carry out operations against Tehran.

Oil Hits Fresh Four-Month High as Trump Warns Iran to Make Deal_1

“Market sentiment appears to be gradually turning more positive, as the bearish oversupply narrative so prevalent in the second half of 2025 weakens,” Standard Chartered analysts including Emily Ashford wrote in a note. “We envisage an uptick in volatility and increasing focus on both supply and demand risks..”

The prompt spread for both oil benchmarks — the difference between their two nearest contracts — has widened in a bullish backwardation structure over the course of this month, indicating tighter supply. That gauge topped $1 for Brent on Wednesday.

A gauge of the dollar tumbled to the lowest in almost four years on Tuesday after Trump said he wasn’t concerned about the currency weakening. The drop has been fanned by his unpredictable policymaking, including threats to take over Greenland and pressure on the Federal Reserve.

Source: Bloomberg

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Adam

Economic

A renewed push to conclude a U.S.-India trade deal may get underway, analysts say, as the White House sees other countries and power blocs working harder than ever to remove barriers to trade and tariffs.

The urgency and impetus to get talks over the line could come after the EU and India signed off on a long-awaited trade deal on Tuesday, with the agreement seeing both sides phase out tariffs on the vast majority of each other’s imports.

“The EU–India deal could ... light a fire under efforts to conclude a U.S.–India trade deal and help to move negotiations forward on a comprehensive bilateral trade agreement,” Mark Linscott, nonresident senior fellow on India at the Atlantic Council, commented Tuesday.

Trump has yet to react to the EU-India deal, which was two decades in the making, but Washington could view bilateral trade agreements between other powerful nations with concern and as a potential threat.

The U.S. already has a trade deal with the EU (which has maintained 15% tariffs on EU exports to the States) but when it comes to the U.S.′ own stalled trade talks with India — a country it imposed a 50% tariff on — it certainly leaves negotiations in more uncertain territory.

But according to Atlantic Council expert Linscott there is no need for a U.S.-India deal to be derailed. “While the agreement may be interpreted as a response to the Trump administration’s tariffs and tariff threats, there is no reason it should undermine the U.S. trade relationships with either the EU or India,” he said.

India’s oil and gas minister told CNBC on Tuesday that a U.S.-India trade deal was at a “very advanced stage” but conceded he didn’t have a timeline for the conclusion of a deal.

“I would try and look at the positive side, I’m not a soothsayer, I don’t know when trade deals will get signed, how long it takes ... but I think one [everybody] needs to chill a bit,” he told CNBC’s Amitoj Singh, as India and the EU announced a landmark trade deal.

“I’m told by the people who are in it [the negotiations] that it’s at a very advanced stage, and I’m hoping that, sooner rather than later, it will also see the light of day,” he added of the U.S. deal.

Sticking points

The EU and India described their agreement as the “mother of all deals” and while the accord sees the two countries ally themselves at a time when global trade is under strain from tariffs, sanctions, and geopolitical rivalry, it does not reduce India’s desire for a deal with the U.S., analysts at global risk consultancy Teneo noted.

The deal “reduces (though not eliminates) the pressure on India to conclude a deal with the US which remains its largest trade (in both goods and services) and defense partner,” analysts Arpit Chaturvedi and Carsten Nickel said in emailed comments Tuesday.

Shumita Deveshwar, chief India economist at TS Lombard, noted that there were a number of sticking points preventing an immediate agreement.

“A free trade deal with the EU after nearly 2 decades of negotiations couldn’t come at a better time for India, which is struggling to strike an agreement with the U.S.,” she said in emailed analysis Wednesday.

“Trade talks with the U.S. are stuck owing to its insistence on getting greater access to India’s farm market and for India to stop buying cheap Russian oil ...Agriculture is a highly politically sensitive sector in India given the low level of farm mechanisation and vast numbers of subsistence farmers. However, India does seem to be scaling back its Russian oil purchases,” she said, noting such purchases had fallen to their lowest level in two years in December.

Source: cnbc

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Oliver Scott

Central Bank

Remarks of Officials

Traders' Opinions

Economic

Data Interpretation

The Bank of Canada (BoC) is holding its policy rate steady at 2.25%, a widely anticipated move that marks its second consecutive pause on rate changes. Governor Tiff Macklem highlighted that significant uncertainty in the economic landscape makes it challenging to predict when or how the central bank might adjust rates next.

In its quarterly monetary policy report, the bank maintained its forecast for modest economic growth through 2026 and 2027, with inflation expected to remain near its 2% target.

Macklem Signals Caution in an Unpredictable Climate

The decision to hold the rate reflects an environment where Canadian businesses are still adjusting to the impact of U.S. tariffs and hiring intentions remain soft.

"While Council judges the current policy rate is appropriate based on our outlook, the consensus was that elevated uncertainty makes it difficult to predict the timing or direction of the next change in the policy rate," Macklem stated in his opening remarks.

This cautious stance leaves economists and financial markets divided on the future of Canada's monetary policy for the rest of the year.

Canada's Economic Forecast: A Mixed Bag

Despite the external pressures, the BoC noted that Canada's economy has proven relatively resilient. The central bank updated its growth projections with a few key adjustments:

• 2025 Growth: Revised up to 1.7% from an earlier projection of 1.2%.

• 2026 Growth: Forecast remains unchanged at 1.1%.

• 2027 Growth: Trimmed slightly to 1.5% from a previous forecast of 1.6%.

The bank expects household spending to continue its modest growth, supported by previous rate cuts and rising disposable incomes. A modest strengthening in business investment is also anticipated.

Tariffs and Trade Deals Cast a Shadow

Governor Macklem identified several key risks to Canada's economic outlook, with trade being a primary concern.

"Geopolitical risks are elevated and the upcoming review of the Canada-United States-Mexico Agreement is an important risk to the outlook," he said.

The BoC also reiterated its view on inflation dynamics. While tariffs could push prices higher, this effect is expected to be offset by downward pressure from excess supply in the economy. The central bank expressed hope that economic restructuring prompted by tariffs will eventually support recovery in productive capacity, but Macklem cautioned, "it will all take time."

Markets Divided on the Bank's Next Move

Following the announcement, the Canadian dollar firmed 0.28% to C$1.3535 against the U.S. dollar, or 73.88 U.S. cents. Money market bets showed little change.

The financial community remains split on what comes next. Many economists believe another rate cut could be necessary to support an economy dealing with tariffs. In contrast, money markets are not pricing in any cuts through 2026 and are instead tilting toward a potential rate hike in the final quarter of the year.

To stay updated on all economic events of today, please check out our Economic calendar

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Adam

Economic

Amazon.com Inc. is cutting 16,000 corporate jobs in an effort to remove layers of bureaucracy and “increase ownership,” becoming the latest company to target managers for layoffs in recent years.

The tech firm will offer US-based employees 90 days to search for a new role internally, as well as severance and other transition support, Beth Galetti, Amazon’s senior vice president of people experience and technology said Wednesday in a blog post.

“We’ve been working to strengthen our organization by reducing layers, increasing ownership, and removing bureaucracy,” Galetti said. She said it’s “not our plan” to announce broad staff cuts every few months and said the company would continue to “make adjustments as appropriate.”

Companies across industries have been trimming management layers in the name of becoming leaner and more productive. Last year, Microsoft Corp. cut thousands of workers with a focus on reducing management; Nissan Group of North America cut 20% of its top management positions; and Amtrak similarly targeted roughly 20% of its own top-level management.

Just as Amazon was announcing its own layoffs, the chip-making machine giant ASML Holding NV said it’s eliminating 1,700 positions largely targeting managerial roles.

The reductions take Amazon’s announced job cuts to 30,000 in three months after an initial wave in October. Chief Executive Officer Andy Jassy has repeatedly said he’s determined to cut management layers that began to concern executives after a pandemic-era hiring binge. Last year, he also warned employees that AI will shrink the workforce as Amazon automates more of its operations.

While the company employed about 1.57 million people as of Sept. 30, most of them work in warehouses. The corporate workforce comprises about 350,000 personnel, meaning the latest cuts represent about 4.6% of that headcount.

Employees were informed about the cuts earlier on Wednesday, though some had been given a heads up that they were coming. Amazon Senior Vice President Colleen Aubrey prematurely scheduled a meeting titled “Project Dawn” that referred to “impacted colleagues” based in the US, Canada and Costa Rica. The email, which said “changes like this are hard on everyone,” quickly spread on internal message boards and social media sites like Reddit where workers were discussing the anticipated job cuts.

A number of tech companies have started the year by announcing layoffs. Meta Platforms Inc. said it would eliminate more than 1,000 jobs from its Reality Labs division to redirect resources to AI wearables and phone features. Pinterest Inc. said Tuesday that it plans to cut “less than 15%” of its workforce and will reduce office space, also in an effort to shift resources toward AI. Autodesk Inc. said it will cut about 1,000 positions.