Fed Rate Cut at Risk: What’s Behind this Uncertainty?
The hope for the Federal Reserve’s monetary policy easing is now fading, especially following the recent labour market report. Industry experts and market participants are asserting that the Fed rate cut is now far from reality.
Growing political pressure on the central bank, along with fresh economic data and legal scrutiny surrounding its leadership, has sparked uncertainty about the Fed’s potential decisions. Banking leaders and analysts say that confidence in the Fed’s independence is critical. They add that any erosion of that trust will have lasting impacts on global crypto markets.
Unveiling Rising Risks to Fed Rate Cut
Amid rising political pressure on the Federal Reserve, a probe into Jerome Powell, and the unexpected labour market data, the Fed rate cut is becoming unlikely. The prevailing conditions signal that the Fed’s interest rate will remain high for a longer time.
While banking leaders say that any threat to the central bank’s independence could significantly impact the risk markets, economic data reveals a reduced emergency for a rate cut. According to the latest reports, a Fed rate cut is unlikely in the near future. Goldman Sachs’ Lindsay Rosner noted,
The Fed will likely hold course for now with the labor market showing tentative signs of stabilizing…Given the improved economic momentum and the decline in the unemployment rate, we see less need for near-term cuts to stabilize the labor market. Instead, we now think the Fed will cut rates as it becomes clear tariff pass-through is complete and inflation is decelerating toward the 2% target.”
This is mainly due to the December jobs report, which revealed a steady market. The report showed that hiring slowed in 2025 to its weakest pace since the COVID-19 pandemic. While the job growth matched almost the economists’ forecast, the unemployment rate edged lower. This indicates that the central bank is more likely to keep the rates unchanged till mid-2026.
BNY Mellon Warns Against Undermining Fed Independence
Interestingly, Bank of New York Mellon CEO Robin Vince warned that the Trump administration’s pressure on the central bank could backfire. He called it “counterproductive” to efforts focused on easing the monetary policy.
The CEO stressed that the Fed’s independence is a key element of the bond market, undermining which would risk weakening the foundation of the debt market. He said, “shaking at the foundation of it doesn’t seem to be to us to be accomplishing the administration’s primary objectives.”
Vince also added that any threat to the Fed’s autonomy could drive interest rates higher. He noted,
“Independent central banks with the ability to independently set monetary policy in the long-term interests of the nation is a pretty well established thing that we’ve seen all around the world over a very long period of time. It’s served economies and capital markets really well.”
Legal Scrutiny over Powell Adds Risk
According to Bank of America, the Justice Department’s criminal investigation into Fed Chair Jerome Powell’s testimony is poised to have a negative impact on the Federal Reserve’s potential decision.
BoFA asserts that Jerome Powell’s strong pushback against recent speculation has provided investors with the assumption that he will remain on the Fed event after his term. Polymarket odds of Powell leaving the board by the end of 2026 have also declined from 83% to 57%.
This indeed has sparked speculations of the Federal Reserve holding more hawkish members on the board. This will make it tougher for the crypto industry to expect more Fed rate cuts.
