Jerome Powell, spendthrift renovator, will defy Donald Trump’s calls for more rate cuts at this year’s first FOMC meeting.

The backdrop could scarcely be more anxious. The Supreme Court last week indicated it likely won’t bless Trump’s attempt to fire Lisa Cook, and Powell will be questioned by reporters about the grand jury subpoenas served to the Fed earlier this month.

Powell will try not to weigh in on unsettled legal matters, but if his on-camera address to the nation on January 11 was any indication, he’s fully prepared to describe Trump’s pressure campaign in derisive terms on the way to characterizing Trump himself as a threat to Fed independence.

Powell demonstrated the patience of a saint with Trump since 2018. That stoicism ran dry this month. The subpoenas were a bridge too far.

It’s worth reminding ourselves that Powell cut rates by 175bps since September of 2024 despite inflation running above target for the entire time. It’s not as if he’s clinging to some sort of unduly masochistic policy stance. As Nomura’s Charlie McElligott put it, “I would make a strong case that Powell has dovishly outperformed the economic context.”

Not that I put much stock in policymakers’ estimates of neutral, but for whatever those estimates are worth, current policy settings are right where they should be considering the balance of risks (i.e., a softening labor market set against still elevated inflation): A touch above neutral.

“[Powell’s] emphasis [in December] on the fact that rates are now in a broad range of ‘plausible’ estimates of neutral has implicitly raised the bar for the economic data to justify further rate cuts,” BMO’s Ian Lyngen and Vail Hartman remarked, editorializing around the chart above.

The market-implied terminal rate, 3.25%, plainly suggests traders don’t believe the “impending turnover in Fed leadership will lead to the massive rate reductions that the administration wants,” they went on.

Speaking of that “impending turnover” in the leadership, Trump may well announce his Fed chair pick in the coming days. According to reports (and betting markets which, to let betting market CEOs tell it, are never wrong), dark horse candidate Rick Rieder now has a good shot at getting the nod. Ol’ Rick was running well ahead of Kevin Warsh headed into the week.

Whatever support Rieder has among market participants, he’s not Trump’s guy — whether Trump realizes it or not. Rick’s a known quantity on Wall Street, and he’s also a mainstay on financial television. While acknowledging that Rieder must’ve communicated some willingness to play ball otherwise he wouldn’t still be in the discussion, evidence to support the notion he’d be the sort of groveling sycophant Trump wants in a Fed chair is lacking, and severely so.

Warsh, by contrast, has on several occasions indicated he’s open to a servile relationship with Trump, and while that hasn’t gone unnoticed by market participants concerned about Fed independence, until Rieder’s odds jumped, the alternative was seen as Kevin Hassett, a toady’s toady who makes Warsh look like a highly responsible choice by comparison.

For now, I won’t spend additional time debating the merits of a Rieder Fed because, as a White House spokesman reminded Bloomberg last week, “until an announcement is made by President Trump, any reporting about the nominations process is pointless speculation.”

Suffice to say Warsh is the safer bet if you’re Trump and you want to simultaneously i) placate markets, ii) pacify the Fed (by handing them someone they’ve worked with before) and iii) guarantee yourself some level of obsequiousness.

(Maybe Trump should just drop the pretense and nominate himself. I’m joking, but only halfway. Trump is to Republican senators what Vladimir Putin is to the Federation Council. Who’s going to look him in the eyes during a confirmation hearing and say, “Mr. President, I’m not going to vote for you”?)

Coming back to Wednesday’s policy decision, it’ll be a hold, obviously. There’s no chance of a fourth straight cut. Inflation’s allegedly tame in the US, but the data covering October and November is comprised of guesstimates, and with the usual “K-shaped” caveats, consumer spending’s decent enough. The labor market’s slowed dramatically, but data from December uniformly suggested hiring stabilized towards year-end.

Assuming there’s no resolution to the standoff over DHS funding by Wednesday, the Fed decision will play out in the long shadow of another looming government shutdown.