The Fed and chairman Jerome Powell face a criminal investigation launched by the president`s close ally, Jeanine Pirro.

Federal Reserve Board Chairman Jerome Powell speaks in Washington on Dec. 10, 2025. Saul Loeb / AFP - Getty Images

The Federal Reserve is expected to hold interest rates steady on Wednesday, when policymakers meet to weigh the state of the labor market and inflation.

In the past, this might have made for a day of very little drama or suspense at the central bank. But not today.

Wednesday`s meeting comes as the Fed and its chairman, Jerome Powell, face a criminal investigation launched by President Donald Trump`s close ally Jeanine Pirro, currently the U.S. Attorney for the District of Columbia.

Powell has accused the White House of using the probe as a pretext to pressure him and the central bank into backing Trump`s long sought-after interest rate cuts.

At the same time, the future of the Fed`s crucial independence hangs in the balance at the U.S. Supreme Court. There, justices are weighing whether Trump exceeded his authority when he moved to fire Fed Governor Lisa Cook last summer.

As Powell holds the line against the White House`s multi-pronged pressure campaign, Trump is actively preparing to unveil his successor. Powell`s term as chair ends in May, and Trump says he has whittled down a list of potential nominees to just a few names.

So while there may be little suspense around interest rates Wednesday, there is still plenty of drama around this meeting.

Interest rates

‘The outcome is all-but a foregone conclusion, wrote JPMorgan Chase chief U.S. economist Michael Feroli. "Fed officials across the spectrum have indicated that after three [0.25%] ‘risk management` rate cuts, now is a good time to pause and take stock of developments."

In recent months, the labor market has appeared to slow, although experts are debating the degree to which it has cooled.

After contracting by 173,000 jobs in October, the labor market added only 56,000 jobs in November and 50,000 jobs in December.

But even with a generally weak pace of hiring, the unemployment rate fell to 4.4% in December, from 4.5% the month before. "The most recent jobless claims data suggest layoff activity remains minimal," Feroli wrote in a client note.

Taken together with the unemployment rate, any broader risks that the labor market will further deteriorate "no longer loom as large as they did last fall," he added.

Inflation, meanwhile, remains well above the Fed`s 2% target, undermining the White House`s argument that the central bank needs to lower interest rates in order to turbo-charge the U.S. economy.

After rising to 3% in September, inflation declined to 2.7% in November and held steady in December. But many economists believe those numbers could be somewhat distorted by technical changes to how data was collected last fall, caused by the six-week federal government shutdown.

All of this amounts to a lot of uncertainty, or what Powell frequently describes as "fog," for policymakers to work through.

With no changes expected to rates, investors will be watching for any signs of Powell`s attitude toward cuts later this year.

Power and politics

Outside of Wall Street, people will likely be watching to see the latest episode of the political and legal drama going on between the Trump White House and the Fed`s independent governors.

On Jan. 11, Powell announced that the Fed had been served with "grand jury subpoenas, threatening a criminal indictment."

The unprecedented public statement effectively fired a return shot at the White House, bringing Powell`s long-simmering tensions with the Trump administration to a head, and out into the open.

It also rattled global markets, as investors wondered how far the president would be willing to go to weaken Powell and the Fed

The criminal probe has its roots in a long-running renovation project at the Fed`s Washington headquarters. Trump and his allies have seized on the construction project to claim that it reflects Powell`s overall mismanagement of the Fed.

Powell insists that the project, while expensive, has been managed properly and he has asked the central bank`s inspector general to review it. The initial renovation was approved by the Fed`s seven other board members before Powell became its chair.

About 20 blocks down from the Federal Reserve at the Supreme Court, justices heard oral arguments earlier this month in the case lodged by Cook, the Fed governor who Trump is seeking to fire citing unproven accusations of "mortgage fraud." Cook and her legal team have denied the allegations.

During the Jan. 21 hearing, several Supreme Court justices appeared skeptical of Trump`s stated justification for removing Cook from the central bank`s board.

Both conservative and liberal justices also seemed sympathetic to the argument that Cook should have the right to challenge Trump`s decision, a notion the government`s attorney had rejected.

In an unusual show of solidarity with Cook, Powell attended the hearing in person.