What we're covering here
• The Federal Reserve is widely expected to hold its benchmark interest rate steady Wednesday after its first policy meeting of 2026, as the labor market and inflation come into better balance.
• The central bank cut rates three times last year as it monitored the economic effects of President Donald Trump’s aggressive policies. Unemployment ticked up last year and inflation moved slightly lower.
• It’s also the first time we’ll hear from Federal Reserve Chair Jerome Powell after his extraordinary rebuke of the Trump administration. He announced earlier this month that he is under federal investigation, saying the criminal probe is a “pretext” meant to intimidate the central bank into cutting rates to the president’s liking.
• Trump has said his pick for a new Fed chair to replace Powell, whose term ends in May, will slash rates. However, the chair is just one vote on a committee of 12 officials who make policy adjustments based on economic evidence, not political pressure.
Wall Street candidate for Fed chair gains momentum
BlackRock’s Rick Rieder is thought to be the current frontrunner in the search for a replacement for Federal Reserve Chair Jerome Powell.
While the decision is still fluid, people familiar with the matter told CNN that the finance executive left a positive impression on those in attendance at his recent sit-down interview with President Donald Trump.
For months, the Trump administration has teased a long list of candidates to take over when Powell’s term as chair ends in May. Treasury Secretary Scott Bessent has spearheaded the search for the key economic role, presenting Trump with four final candidates ahead of the expiration of Powell’s term: National Economic Council Director Kevin Hassett; former Fed Governor Kevin Warsh; Fed Governor Christopher Waller; and Rieder, BlackRock’s chief bond investment manager.
Last week, Trump indicated that he has narrowed down the field. In a speech at the World Economic Forum in Davos, Switzerland, he repeated his preference that Hassett, long seen as the front-runner, remain in his current role.
And in an interview with CNBC that same day, Trump said Rieder was “very impressive.”
Read more here.
Trump again signals Hassett won't be Fed chair
President Donald Trump again indicated that he’s reluctant to tap Kevin Hassett to run the Federal Reserve, saying Wednesday that “I don’t want to lose him.”
“My only problem is I don[t want to lose him,” he said of Hassett, who currently heads the National Economic Council. “I will tell you that he’s working from a big deficit, because I don’t want to lose him. He’s so good.”
Trump’s comments marked the second time in recent weeks he’s expressed concern about letting Hassett leave the White House, ahead of an announcement of his pick for Fed chair expected in the coming days.
Hassett was seen as the frontrunner for the job for months, due in large part to his close relationship with Trump. But the president has weighed three other candidates, while indicating that he likes Hassett’s ability to defend him in public as part of his economic team.
Who the next Fed chair could be
President Donald Trump has yet to announce his pick to replace Federal Reserve Chair Jerome Powell once his term is up in the spring.
Of the people on his list, top contenders include National Economic Council Director Kevin Hassett; former Fed Governor Kevin Warsh; Fed Governor Christopher Waller; and BlackRock’s Rick Rieder.
Though once thought to be Trump’s top pick, Trump recently implied Hassett was no longer in the running. “I actually want to keep you where you are if you want to know the truth,” Trump said, referring to Hassett, who was at an event the president spoke at earlier this month.
Meanwhile, momentum for Rieder has been picking up lately. People familiar with the matter told CNN that the finance executive left a positive impression on those in attendance at his sit-down interview with Trump earlier in the month. And during a CNBC interview from Davos, Switzerland, last week, Trump said he found Rieder “very impressive.”
Read more here.
Here's what Wall Street expects from the Federal Reserve
A small rally in US stocks lost steam Wednesday midday ahead of the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
The Dow was up just 24 points, or 0.05%. The S&P 500 and tech-heavy Nasdaq each fell 0.1%, erasing earlier gains.
Wall Street widely expects the Fed to hold interest rates steady. Here’s what economists and investors expect from the central bank and from Fed Chair Jerome Powell’s scheduled remarks this afternoon:
- “The January [Fed] meeting is likely to be uneventful, with no change to the fed funds rate, only minor changes to the statement and few hints about the future policy path.” — David Mericle, chief US economist at Goldman Sachs. “Chair Powell is likely to emphasize that the [Fed] has just delivered three cuts that should help to stabilize the labor market and is well positioned for now while it assesses their impact.”
- “The key question at this meeting will be how Powell communicates the pause: Is it a ‘dovish hold’ in which he continues to emphasize that the outlook supports further rate cuts, or will Powell signal a more durable pause? We expect the former.” — Michael Gapen, chief US economist at Morgan Stanley.
- “Powell will be asked about his video warning that Trump DoJ subpoenas and other actions seek to subject monetary policy to the ‘preferences of the president.’ We think he will stand by everything he said and express faith in the Supreme Court as the final arbiter of Fed independence.” — Krishna Guha, vice chairman at Evercore ISI.
- “There will be no new set of dots or economic forecasts, and the changes to the post-meeting statement are unlikely to offer material policy signals.” — Michael Feroli, chief US economist at JPMorgan Chase. “At the press conference we expect that Powell will indicate that policy is well-positioned to address risks to either of the Fed’s mandates, and we think he’ll avoid discussing the various political issues relating to the Fed.”
- “I’d characterize today’s meeting as a very boring meeting during very interesting times.” — Christian Hoffmann, head of fixed income at Thornburg Investment Management. “We’ve been particularly surprised by the market’s sanguine reactions to increasingly unpredictable geopolitical events.”
How the Supreme Court's verdict in the tariff case impacts interest rate decisions
Federal Reserve Chair Jerome Powell said at last month’s policymaking meeting that the verdict in a landmark Supreme Court case that will determine whether President Donald Trump had the legal authority to impose his most sweeping tariffs is “not something I want to address.”
At the same time, the case has substantial bearing on how officials set interest rates.
A verdict against the administration would mean the government has to cease collections for the specific tariffs being challenged. That could reduce inflationary pressures, given how the historic increase in tariff rates over Trump’s second term has been contributing to higher prices.
But there’s good reason to believe the outcome of the case won’t move the dial much. That’s because Trump has many other levers he can pull to impose other levies.
Regardless, economists at Morgan Stanley said in a recent note they expect the nation’s effective tariff rate to fall on its own as more importers continue to source from countries with lower border taxes in place.
So when is the tariffs ruling expected?
When the Supreme Court agreed last September to hear a dispute over President Donald Trump’s billion-dollar tariffs on foreign goods, it heeded the administration’s plea that time was of the essence.
The court imposed a fast-track briefing schedule and held oral arguments on November 5. That session exposed multiple sticking points among the justices, but the public’s expectation of a relatively quick resolution endured.
As global markets churn and American consumers anticipate even pricier goods, the question persists: Does the president have this tariff authority or not? And when will the Supreme Court tell everyone?
The nine justices have begun a recess and are next scheduled to take the bench and possibly issue opinions on February 20.
However, they could interrupt this recess if a decision was finished before then. Such a move would be highly unusual.
But there are some explanations for the wait, beginning with the sheer difficulty of a case. Read more here.
The US dollar just had its worst losing streak since April
The US dollar has had a turbulent few days.
The dollar index fell 2.6% across the past four days, suffering its worst losing streak since April. The dollar index is hovering near its lowest level in four years.
While stocks recovered after a brief sell-off last week, the dollar continued to slide. Uncertainty about the Trump administration’s policy decisions are contributing to a weaker dollar, analysts say.
A weaker dollar can make exports more competitive in the global market, which could provide a tailwind for US manufacturing. The weakening dollar, however, can also signal that investors are hedging their exposure to US policy volatility.
The dollar’s decline intensified Friday after reports that the New York Federal Reserve conducted a “rate check” on the yen/dollar pair, according to Reuters, fueling speculation there could be intervention to boost the Japanese yen, which had been weakening in recent months amid Prime Minister Sanae Takaichi’s proposal for tax cuts and decision to call a snap election. The yen rose against the dollar each of the past three days.
When Trump was asked ahead of an event in Iowa on Tuesday if he was “comfortable with the current value of the dollar” or whether he thinks it has “declined too much,” he told reporters: “No, I think it’s great. The value of the dollar, look at the business we’re doing. No, the dollar’s doing great.”
The dollar extended its losses after those comments.
The dollar slide took a pause on Wednesday. The Fed is expected to hold rates steady at the conclusion of its two-day policy meeting this afternoon. That can usually boost the dollar.
Treasury Secretary Scott Bessent on Wednesday told CNBC the United States has a “strong dollar policy” and is “absolutely not” intervening in Japan’s markets, tempering speculation. The dollar index rose 0.3% Wednesday morning while the yen sank 0.85% against the dollar.
The state of the labor market
The United States is “in a jobless boom,” Heather Long, chief economist at Navy Federal Credit Union, told CNN earlier this month. “There was almost no hiring in 2025.”
“We would be talking about job losses in 2025, if it weren’t for health care and social assistance,” she said.
About 85% of last year’s job gains came in the first four months of 2025, and the slowing labor market seized up in April as businesses put spending on hold while they navigated President Donald Trump aggressive new tariffs and the rise of artificial intelligence.
What resulted were muted employment gains – or even outright losses – across most industries.
The lone exceptions were health care – an industry growing as a result of an aging population – and leisure and hospitality, which has reaped some of the spoils from an increasingly bifurcated economy, where well-heeled Americans see continued wealth gains while a larger share of middle- and lower-income households are experiencing increased strain.
US stocks open higher as Wall Street awaits Fed rate decision
US stocks opened higher Wednesday morning as investors await the Federal Reserve’s decision on interest rates, set to be announced at 2 p.m. ET.
The Dow was up 114 points, or 0.23%. The broader S&P 500 rose 0.33% and crossed 7,000 points for the first time ever. The tech-heavy Nasdaq Composite rose 0.61%.
The S&P 500 is coming off a record high close. The Nasdaq, which last hit a record high in October, is less than 1% away from a new all-time high.
The Fed is widely expected to hold interest rates steady, taking a pause after delivering three consecutive rate cuts at its policy meetings in September, October and December.
Treasury yields, which rise when bonds fall, ticked up Wednesday morning. The US dollar slightly strengthened against other major currencies, pausing a recent slide.
It’s a busy week for markets. While investors are focused on the Fed meeting, Wall Street is also in the midst of tech earnings: Meta (META), Microsoft (MSFT) and Tesla (TSLA) are all expected to report on their latest quarter after the closing bell this afternoon.
Companies that make up roughly 35% of the S&P 500’s market value are reporting earnings this week, according to UBS. “Greed” was the sentiment driving markets, according to CNN’s Fear and Greed Index.
Meanwhile, gold prices surged 3.45% and briefly rose above a record high of $5,300 a troy ounce. The US dollar index is coming off its worst four-day streak since April and is hovering at its lowest level in four years.
A defiant Powell prepares to pause
The first Federal Reserve policy meeting of 2026 is one of the final ones with Jerome Powell at the helm. And it comes at one of the most critical moments in Fed history.
Fed independence is being tested in real time by the White House and at the Supreme Court. The Powell-led Fed is widely expected to defy President Donald Trump’s demands for dramatically lower rates, with the market seeing just a 3% chance of a cut today.
That’s in part because the unemployment rate appears to have stabilized for now, taking pressure off the Fed to come to the rescue after three straight cuts last year. On the inflation front, another rate cut risks accelerating price increases, which have hovered above the Fed’s 2% target for several months.
What does the Fed need to see in order to start cutting rates again?
The Federal Reserve is fully expected to hold its benchmark lending rate steady this month for the first time since July. After three consecutive rate cuts in September, October and December, the committee signaled at its last meeting that it’s going to be a while before US consumers can expect to see further reductions in borrowing costs.
The most recent batch of rate cuts was in response to a weakening labor market, including unusually slow job growth and higher unemployment. But inflation remains well above the Fed’s 2% target and is expected to creep higher as President Donald Trump’s tariffs continue to bite.
That has led to more disagreement than usual among Fed officials as to the next step: Cut rates to shore up the labor market, raise rates to fight inflation or hold steady and see where the next battle lies. “You have one tool. You can’t do two things at once,” Fed Chair Jerome Powell said last month.
For now, according to the latest policy statement, Fed officials are leaning toward staying on hold in the near term as they “carefully assess” the “extent and timing” of any additional cuts.
Fed watchers will be closely tuned to Powell’s press conference at 2:30 p.m. ET to glean any more precise details on that assessment.
