Economic data overheating, intertwined with political pressures, the Federal Reserve is caught in a deadlock between cutting rates and maintaining credibility, forcing the market to reprice the reality of “higher interest rates for longer.”
(Background: Powell once said, “Unless I die,” he would never resign early, the last bastion of Fed independence)
(Additional context: The story of Trump pressuring Fed Chair Powell: the global liquidity surge triggered by Fed remodeling)

Table of Contents

• Two scenarios, two costs
• Staying put next week
• Political clouds over Washington

The U.S. Federal Reserve (Fed) will hold a rate meeting next week. Currently, according to Fedwatch data, there is a 95% chance that the Fed will keep rates unchanged at 3.5~3.75% in January. This range, once seen as a transitional zone, is rapidly becoming a long-term parking lot.

The U.S. Q3 GDP grew at an annualized rate of 4.3%, and the unemployment rate remains at 4.5%, with no sign of recession. Bernard Yaros of Oxford Economics roughly estimates that just AI infrastructure and fiscal stimulus added 0.6 percentage points to GDP. He states directly:

With this firepower, talking about easing is just wasting saliva.

Two scenarios, two costs

Currently, Wall Street is circulating two possible endings:

Scenario A: Follow the fundamentals, prolong high interest rates, tighten borrowing costs, but the economy proves resilient.

Scenario B: Political pressure forces early rate cuts and deregulation, inflation expectations derail, long-term rates spike again, which may not be good news for capital markets. J.P. Morgan even warns that if the labor market remains tight, the Fed might restart rate hikes in 2027.

Staying put next week

Next week’s Fed outcome is almost certain: do nothing. For Powell, who is about to leave office, staying put is the last line of defense to preserve the central bank’s reputation and also leaves a clean slate for his successor.

But the market must digest this itself: high interest rates are not just longer, but may become the new baseline. Investors will need to recalculate costs when borrowing, issuing bonds, or speculating in bubbles within this environment.

Political clouds over Washington

And the economic questions are tough, but political questions are even colder. The Trump administration previously issued subpoenas to the Fed headquarters over the remodeling project, with the Los Angeles Times describing this as an “unprecedented challenge” to the central bank’s independence. Powell refused to back down, issuing a counterstatement emphasizing that decision-making is not subject to short-term political influence.

Traditionally, central bank independence from political operations is seen as the cornerstone of maintaining monetary policy credibility. Once markets believe that Fed decisions are influenced by politics, it could trigger chain reactions such as runaway inflation expectations and reduced predictability of interest rate policies.

For the cryptocurrency market, Fed policy uncertainty is also a key variable. If the Fed is forced to accelerate rate cuts under political pressure, it could temporarily benefit risk assets; but in the long run, damage to central bank credibility might lead to more volatile markets.

As Powell’s term enters its final phase, the power struggle between the Fed and the White House is bound to intensify. This contest over U.S. monetary policy independence will be one of the most closely watched issues in global financial markets in 2026.