The US Federal Reserve is expected to pause cutting interest rates this week, with questions turning to its Chair Jerome Powell on defending the central bank's independence.
Wednesday's press conference will be Mr Powell's first public remarks since revealing this month that he is under criminal investigation by President Donald Trump's Justice Department.
“I'm not expecting any great revelations on other parts of policy because officials are very divided … The questioning and the most interesting answers will come around the reaction to the latest developments, particularly the criminal proceedings against Powell,” said Michael Pearce, chief US economist at Oxford Economics.
“That could take up a lot of airtime at the press conference.”
Mr Powell said Mr Trump's administration launched a criminal investigation into allegations of perjury when answering questions from senators last June about the Fed's renovation project. He accused it of being a cover-up story to pressure the Fed into lowering interest rates.
“The threat of criminal charges is a consequence of the Federal Reserve setting interest rates based on our best assessment of what will serve the public, rather than following the preferences of the President,” Mr Powell said.
The investigation has since sparked pushback from US politicians, and Mr Trump said he was unaware of the investigation.
Still, it marked a significant escalation in the Trump administration's pressure campaign against the Fed. Mr Trump has repeatedly attacked Mr Powell for not delivering steep rate cuts.
The US President is also attempting to fire Fed governor Lisa Cook, citing mortgage allegations, although justices on the Supreme Court appeared reluctant to give him that power. Mr Powell attended last week's argument at the high court in a show of support for Ms Cook.
This week's meeting is unlikely to satisfy Mr Trump's push for lower rates. Fed officials are signalling they are in no hurry to cut rates again after delivering three rate cuts in their final three meetings last year.
“I think they could be on pause for quite a while,” Mr Pearce said.
Those three cuts brought the federal funds rate down to roughly 3.64 per cent. That is now within the target range of what Fed officials refer to as neutral, which is the level at which policy neither speeds up nor slows down the economy.
“[That] suggests that they're going to take a much more cautious approach this year setting policy,” Mr Pearce said.
Policymakers on the Fed's rate-setting committee continue to grapple with their dual mandate: price stability and full employment. Sensing weakness in the labour market, the Fed moved to cut rates in three divided votes last year.
After steering a divided committee to push through a third quarter-point cut in December, Mr Powell at the time said the Fed is “well positioned to wait and see how the economy evolves”.
Recent economic data has shown that inflation remains above the Fed's 2 per cent target, while a climbdown in the unemployment rate and recent jobless claims point to signs that the labour market is beginning to stabilise.
Noureldeen Al-Hammoury, chief market strategist at Equiti Group in Dubai, said little has changed since the Fed's meeting in December. And with geopolitical risks elevated, inflation above target and data collection still affected by last year's government shutdown, he expects the US central bank to maintain caution.
"Absent a clear deterioration in growth or labour market conditions, we do not expect the Fed to adjust policy in the near term," he said.
Policymakers are also still deeply divided on how fast and how far to reduce rates. The new crop of rotating regional Fed presidents who vote on decisions could also unveil new disagreements.
Philadelphia Fed president Anna Paulson, who will vote on rate decisions this year, signalled a patient approach towards cutting rates. In a speech this month, she said there could be adjustments “later in the year” if inflation continues to moderate and the labour market stabilises.
“Disagreement over the neutral rate is one key factor driving divergent views on the [Fed] about the appropriate path of policy,” Wells Fargo economists wrote to clients last week.
