US Weighs Iran Strike: Tehran's Defense vs. Retaliation

U.S. Treasury yields pushed higher on Wednesday after the Federal Reserve concluded its two-day meeting, leaving interest rates unchanged but signaling that its fight against inflation is not over.

The central bank held its key policy rate in the 3.50%-3.75% range, a move that was widely anticipated by markets. However, the Federal Open Market Committee (FOMC) statement noted that inflation remains elevated and tweaked its language on the jobs market, suggesting policymakers are growing more confident in the economy's resilience.

Fed Signals Confidence in a Stabilizing Labor Market

In its official statement, the FOMC noted that "job gains have remained low" but removed previous language highlighting rising downside risks to employment. This subtle shift indicates that the Fed is less concerned about a potential deterioration in the labor market.

Dario Perkins, managing director for global macro at TS Lombard, described the announcement as an "absolute snoozefest" but labeled the statement "slightly hawkish."

"The only noteworthy point came from a slight upgrading of how the FOMC perceives the labor market," Perkins explained. "The jobs data have stabilized and that has made officials less anxious about 'stalling'."

Powell's Hawkish Tone Shifts Rate Cut Expectations

Fed Chair Jerome Powell reinforced this message during his press conference, adopting a hawkish tone while reiterating that a rate hike is not the committee's baseline expectation. He emphasized that upside risks to inflation and downside risks to employment have both eased, positioning the Fed to react to future data as needed.

The market reacted immediately to the Fed's confident stance.

• The benchmark 10-year Treasury yield rose 2.8 basis points to 4.249%.

• The 30-year Treasury yield increased by 2.6 basis points to 4.860%.

• The 2-year Treasury yield, which is highly sensitive to interest rate expectations, climbed 1.6 basis points to 3.585%.

Following the decision, interest rate futures adjusted, pricing in approximately 46 basis points of easing for 2026. This implies fewer than two standard quarter-point rate cuts, a decrease from the 53 basis points of cuts priced in just two weeks ago.

Chris Grisanti, chief market strategist at Mai Capital Management, suggested a more aggressive outlook. "With the market strong and the economy strengthening, I think there may be no cuts in 2026," he commented.

Dissent Emerges as Yield Curve Flattens

The decision to hold rates was not unanimous. Governor Christopher Waller and Governor Stephen Miran both dissented, advocating for a quarter-percentage-point rate cut. This dissent highlights a division within the Fed on the appropriate path forward.

The bond market's yield curve, a key indicator of economic expectations, also reacted to the news. The spread between 2-year and 10-year Treasury yields narrowed from 66.6 basis points to 65.2 basis points, a slight flattening. Earlier in the day, the curve had steepened to 67.8 basis points amid concerns about inflation linked to a declining dollar—a move seemingly encouraged by President Donald Trump. However, Treasury Secretary Scott Bessent later reaffirmed the administration's strong-dollar policy, calming those fears.

With the FOMC meeting concluded, market attention is turning to the future leadership of the central bank. Matthias Scheiber, head of the multi-asset team at Allspring Global Investments, noted that the announcement of the next Fed chair will be a major focus, with the race considered "wide open." The general expectation is that a more dovish successor will replace Powell when his term ends in May.

'SERIOUS CONVERSATIONS'

Source: Reuters

Jan 28 (Reuters) - Gold prices climbed above $5,300 per ounce for the first time on Wednesday, propelled by economic and geopolitical uncertainty, while markets absorbed the Federal Reserve's latest rate verdict.

Spot gold was up 2.2% at $5,301.60 an ounce by 2:40 p.m. ET (1940 GMT) after touching a record $5,325.56.

U.S. gold futures for February settled 4.3% higher at $5,303.60.

"The rally in the precious metals have kind of taken on a life of their own at this point," said Peter Grant, vice president and senior metals strategist at Zaner Metals.

Gold remains overbought and vulnerable to a correction, but strong buying interest during dips continues to favor the upside, with the next target projected at $5,400, Grant added.

The Fed held interest rates steady, citing still-elevated inflation alongside solid economic growth, but gave little indication in its latest policy statement of when borrowing costs might fall again.

Both Governor Christopher Waller, a contender to replace Fed Chair Jerome Powell when his term as central bank chief ends in May, and Governor Stephen Miran, on leave from his job as an economic adviser at the White House, dissented in favor of a quarter-percentage-point rate cut.

"Markets are just oscillating after the Fed statement... No suggestion that the Fed is in any hurry to move again," said Tai Wong, an independent metals trader.

Powell said inflation in December was likely still well above the central bank's 2% target. U.S. President Donald Trump said on Tuesday he would soon announce his pick to replace Powell.

Gold, a safe-haven asset that does not yield interest, typically performs well during periods of low rates. It has gained more than 20% since the start of the year, building on last year's record gains.

Meanwhile, crypto group Tether plans to allocate 10%–15% of its investment portfolio to physical gold, its CEO Paolo Ardoino said, adding to the bullion which it says already backs some of its products.

Spot silver rose 0.7% to $113.78 an ounce after hitting a record high of $117.69 on Monday. Prices gained nearly 60% so far this year.

"Number of silver indicators suggest prices may be due a correction in the short term," analysts at Standard Chartered said in a note.

Spot platinum fell 1% to $2,612.81, having hit a record $2,918.80 on Monday, while palladium rose 3.9% to $2,009.69.

Source: Reuters

Federal Reserve Chair Jerome Powell has offered his first public defense for attending a Supreme Court hearing concerning Fed Governor Lisa Cook, calling the case a pivotal moment for the central bank's independence.

Speaking at his press conference on Wednesday, Powell framed his controversial decision as a necessary stand. "That case is perhaps the most important legal case in the Fed's 113-year history," he stated. "As I thought about it, I thought it might be hard to explain why I didn't attend."

Federal Reserve Chair Jerome Powell addresses the media, explaining his decision to attend a crucial Supreme Court hearing.

Powell's presence at the opening arguments last week drew criticism, most notably from Treasury Secretary Scott Bessent, who called the move a "mistake" that politicized the case.

The Supreme Court Showdown Over a Fed Governor

The legal battle centers on whether President Donald Trump has the authority to fire Cook. This question has significant implications for a president's ability to remove central bank officials and exert control over monetary policy.

During the hearing, Supreme Court justices appeared skeptical of the claim that Trump was within his powers to remove Cook. Trump has officially cited mortgage fraud allegations as the reason for his action, but critics believe the move is linked to his public push for lower interest rates. The Supreme Court had previously allowed Cook to remain in her position while awaiting the oral arguments.

A Two-Pronged Threat to Fed Autonomy

The attempted removal of Cook is not the only source of political pressure on the central bank. Earlier this month, Powell revealed he is facing a federal probe related to renovations at the Fed's headquarters.

Many observers have connected this investigation to Trump's repeated criticism of Powell for not cutting interest rates more quickly. Together, the criminal investigation and the attempt to oust a governor have fueled concerns that the Federal Reserve's long-held apolitical status is under threat.

Why Independence Matters

During Wednesday's press conference, Powell emphasized that political separation is essential for the Fed's long-term credibility.

"The point of independence is not to protect policymakers or anything like that," Powell explained. "It just is that every advanced economy (and) democracy in the world has come around to this common practice."

He warned that if the central bank loses that separation, "it would be hard to restore the credibility of the institution."

With his own term as chair ending in May, Powell's comments carried an additional weight. He concluded with pointed advice for whoever might take his place next.

"Don't get pulled into elected politics," Powell urged. "Don't do it."

The Bitcoin and cryptocurrency markets are bracing for a pivotal moment as the U.S. Federal Reserve prepares to announce its first interest rate decision of 2026, followed by a press conference with Chairman Jerome Powell.

While the Fed is widely expected to keep its policy rate unchanged, the real focus is on the forward-looking signals from Powell, which could set the tone for digital assets in the coming months.

No Rate Change Expected, But Focus is on Powell

After implementing three consecutive interest rate cuts beginning in September of last year, the consensus is that the Fed will pause its easing cycle in January. The market anticipates the policy interest rate will hold steady in the 3.50–3.75 percent range.

The economic data supports a cautious stance. With U.S. inflation hovering around 2.7% and the job market showing signs of a slowdown, the central bank has reason to wait and assess incoming information before making its next move.

Olu Sonola, head of U.S. Economic Research at Fitch Ratings, noted that current inflation and employment dynamics will likely keep the Fed on hold during this meeting.

Key Timings for the Announcement

The Federal Reserve will release its decision on January 28, 2026, at 10:00 PM Turkish time. Chairman Jerome Powell is scheduled to begin his verbal statement and press conference thirty minutes later, at 10:30 PM.

Political Pressure Meets Economic Reality

Adding a layer of complexity is the political pressure from U.S. President Donald Trump, who has openly called for rate cuts to support economic growth. Trump recently stated that a "meaningful reduction" in interest rates is essential.

Despite this, the Fed is expected to prioritize its dual mandate of price stability and maximum employment. Economists are watching to see how Powell navigates this dynamic.

• Tim Duy, chief economist at SGH Macro Advisors, suggested Fed officials may adopt a strategy to "pause interest rate cuts and reassess if data changes."

• Karim Basta of III Capital Management believes Powell could signal that current interest rates are "at a good level for now."

• Bloomberg economists Anna Wong and Chris Collins warned that a pause could provoke a fresh wave of criticism from the White House.

Why Powell's Words Matter More Than the Decision

With a rate hold largely priced in by the markets, investors will scrutinize every word from Chairman Powell's press conference for clues about the Fed's future trajectory. This meeting is particularly critical as it is the first since a subpoena was issued concerning building renovations.

Traders will be listening for Powell's commentary on several key issues:

• Future Rate Cuts: Does he leave the door open for a rate cut in March or beyond?

• Economic Outlook: What is his assessment of inflation and economic growth?

• Political Independence: How will he address Trump's calls for lower rates and defend the central bank's autonomy?

• Personal Future: What are his plans after his term ends in May?

Ultimately, Powell’s stance on these topics will provide the guidance that shapes the direction of Bitcoin and the broader cryptocurrency market.

U.S. Treasury prices fell on Wednesday, pushing the yield on the benchmark 10-year note up by 2.8 basis points to 4.251%. The move came as the Federal Reserve announced its widely expected decision to keep interest rates unchanged, and as investors appeared to favor gold over government debt as a primary safe-haven asset.

Bond prices trended lower for most of the session before recovering some ground near the close. While government bonds typically attract buyers during times of geopolitical turmoil, the continued surge in gold prices suggests the precious metal is currently the preferred hedge.

Federal Reserve Pauses Rate Cuts Amid Uncertainty

The main driver for the bond market was the Federal Reserve's decision to maintain the federal funds rate in its current target range of 3.50% to 3.75%. This move marks a pause after a series of three consecutive quarter-point rate reductions.

In its statement, the central bank cited "elevated uncertainty about the economic outlook" as the key reason for holding rates steady. Officials also reaffirmed their focus on the dual mandate of achieving maximum employment while ensuring inflation returns to its 2% long-term target.

A Divided Board: Two Governors Voted for a Cut

The decision to pause was not unanimous. Federal Reserve Governors Stephen I. Miran and Christopher J. Waller dissented from the majority, indicating they preferred another quarter-point rate cut.

Market Outlook and Expert Analysis

Mike Fratantoni, SVP and Chief Economist at the Mortgage Bankers Association, commented that there seems to be a "clear and consistent majority in favor of a pause in this rate-cutting cycle."

He suggested this pause will likely continue "unless or until the job market weakens further." Fratantoni added, "With inflation remaining elevated, the FOMC majority does not seem in any rush to make further rate moves."

Market sentiment aligns with this view. According to CME Group's FedWatch Tool, investors currently expect the Fed to keep rates on hold until after Chairman Jerome Powell's term ends in May.

What to Watch Next

Looking ahead, traders will be closely watching several key economic reports on Thursday. The market's direction could be influenced by new data on weekly jobless claims, the U.S. trade deficit, and factory orders.