The Fed Is About to Do Nothing, and That's Where the Theater Begins

Wednesday afternoon at 2 p.m. ET, Jerome Powell will announce that the Federal Reserve is holding interest rates steady at 3.5%–3.75%. This is not news. The market priced this in weeks ago. Futures show virtually zero probability of a cut. Nobody will be surprised.

But the press conference—that's where things get interesting. Because Powell is about to sit down in front of the world and defend the independence of the Federal Reserve while his boss loudly insists he's doing it all wrong.

Here's what's actually happening: The administration is investigating Powell over the Fed's headquarters renovation. Powell himself called the Justice Department's probe a "pretext" for Trump's desire to bully the Fed into cutting rates. The President has already told us he's narrowing down candidates to replace Powell "down to maybe one," and analysts reckon the most likely window for an announcement could coincide with the Fed's rate decision itself. This isn't obscure Washington procedural stuff anymore. This is the executive branch openly pressuring the central bank while a Supreme Court case hangs over the appointment of Fed Governor Lisa Cook.

It's a siege, and everyone's pretending it's normal.

The economic data underneath all this theater is murkier than either camp wants to admit. Yes, the S&P 500 reached a new all-time intraday high on Tuesday, and big tech stocks are grinding higher into earnings season. Apple and Microsoft advanced more than 1% and 2% respectively. But notice what happened to the breadth: UnitedHealth cratered 20% after a profit warning tied to Medicare Advantage reimbursement changes. That's not a small wiggle. That's a systemic warning that the easy money is wringing out.

The labor market is softening in ways that matter. Unemployment is hovering, jobless claims are manageable, but wage growth is losing steam and hiring has become genuinely anemic. December jobs growth slowed to levels not seen since the pandemic, and consumer sentiment sits at 54—below Great Recession levels. That number is a scream nobody's listening to because equities keep reaching new highs.

Inflation, meanwhile, remains sticky. The Fed now expects PCE inflation at 2.4% in 2026, down from 2.6%. That's the right direction but still not at target. The Fed's own projections suggest only one 25-basis-point cut in 2026, which is almost insulting given how hard this central bank squeezed the economy over the past three years.

What's really fracturing the Fed is philosophical. There are now three dissents from the FOMC—Governor Stephen Miran wanted a 50-basis-point cut, while regional Fed presidents Jeffrey Schmid and Austan Goolsbee voted for no cut at all. The institution is splintering. That's the real story. It's no longer a unified body carefully weighing labor and inflation. It's a battlefield between doves convinced the labor market is cracking and hawks convinced inflation will rear its head again.

Meanwhile, gold is having the time of its life. Spot gold surged past $5,100 an ounce, with Goldman Sachs lifting its December 2026 forecast to $5,400. This isn't a safe-haven trade anymore—it's structural. Central banks are buying about 60 tonnes per month, far above the pre-2022 average of 17 tonnes. The world's policy centers are collectively hedging against something. Against geopolitical chaos. Against fiscal deterioration. Against the possibility that fiat currencies might not be the safest place to park capital. When central banks start front-running markets, you should pay attention.

The dollar has weakened considerably. The Dollar Index pulled back another 0.4% and is now testing the September low just above 96, levels not seen since early 2022. Tariff anxiety. Political uncertainty. The sense that the U.S. fiscal position is careening toward a reckoning. All of it compounds into reserve diversification.

Powell will hold rates steady on Wednesday. Trump will complain almost immediately. The Fed will defend its independence in language designed to sound confident but will ultimately be hoping nobody pushes too hard. A new Fed chair announcement could come "within the next couple of weeks," and the betting markets still favor Kevin Warsh or Christopher Waller—though Rick Rieder's name keeps floating around the prediction markets.

The real rate cuts won't come until June at the earliest, probably September if the labor market cooperates. By then, we'll have a new Fed chair, more tariff reality, a clearer picture of whether the Trump administration's fiscal plans are actually happening, and—most importantly—whether the stock market has finally priced in that AI isn't going to deliver returns for the next five years the way it delivered hype for the last two.

Until then, we're in the holding pattern. The market pretends everything's fine. Gold keeps climbing. The dollar weakens. Credit conditions tighten slowly around the margins. Consumer sentiment wallows in the depths. And the Federal Reserve holds a press conference to explain why staying still is actually the most prudent thing they could possibly do.

It's theater dressed up as monetary policy. But the real action is happening in the background, where hedge funds are loading up on gold, international investors are rotating away from U.S. equities, and central banks worldwide are hedging against a world where American financial dominance is no longer quite so assured.

Wednesday's "no change" announcement will confirm what the market already knows. The real story is everything that comes after.