Federal Reserve Officials Unanimously Defend Policy Independence, While Signaling Pause in Rate Cuts

On Wednesday, January 15, several Federal Reserve officials publicly stressed the importance of central bank independence in setting monetary policy. Most also signaled the Fed may pause rate cuts at this month’s meeting, citing the U.S. economy’s ongoing strength, elevated inflation, and the need for continued restrictive monetary policy. In response to a U.S. Department of Justice (DOJ) subpoena over the Fed’s headquarters renovation and a probe into whether the project influenced policy decisions, multiple officials noted political or judicial pressure should not interfere with monetary policy choices. Minneapolis Fed President Neel Kashkari explicitly backed Chair Jerome Powell’s stance, stating the investigation touches on monetary policy independence and the Fed will keep making data- and analysis-driven decisions even if leadership changes. Chicago Fed President Charles Evans, Atlanta Fed President Raphael Bostic, and New York Fed President John Williams also emphasized the Fed does not set interest rates under political pressure, highlighting the need to maintain long-term inflation stability. In contrast, Fed Governor Lael Brainard downplayed the probe’s impact, saying inflation is on track to ease appropriately and expressing reservations about public support some fellow policymakers have shown for Powell’s actions. On the economic outlook, most officials (excluding Brainard) indicated another rate cut is unlikely at this month’s FOMC meeting. Kashkari bluntly said rates should stay unchanged now given high inflation and strong economic performance, but conditions for a cut could materialize later this year. Markets broadly expect the Fed may not resume rate cuts until after June. Bostic stressed policy still needs to restrain economic activity, and the Fed has a “considerable way to go” before hitting its 2% inflation target. Overall, a consensus is emerging at the Fed: it’s more prudent to hold rates steady in the short term until inflation clearly falls further.