FOMC Meeting Preview: Will Trump Undermine Powell by Nominating a New Fed Chair?

Federal Reserve, FOMC Key Points

• Traders and economists expect the Fed to hold interest rates in the 3.50-3.75% range.
• With the Fed seemingly on hold for at least the next couple months, this represents a prime opportunity for President Trump to undermine Powell around the central bank’s meeting and nominate a successor
• EUR/USD is testing a key “line in the sand” near 1.1920 heading into the meeting and potential Fed Chairman nomination.

When is the FOMC Meeting?

The January 2026 FOMC meeting will conclude on Wednesday, January 28 at 2:00 ET.

Fed Chairman Powell’s press conference will begin at 2:30 ET.

What are the FOMC Interest Rate Expectations?

Traders and economists expect the Fed to hold interest rates in the 3.75-4.00% range with high confidence

As of writing, Fed Funds futures traders are pricing in 97% odds of no change to interest rates per CME FedWatch:

Source: CME FedWatch

Even looking out through the March meeting, traders are pricing in 85%+ odds of no change to rates, so interest rates are highly likely to remain on hold until at least the second quarter of the year.

Assuming the Fed leaves rates unchanged as expected, the market’s focus will immediately shift to the central bank’s Monetary Policy Statement and Fed Chairman Powell’s Press Conference for insights into the how the Fed is viewing the labor market and inflation dynamics.

FOMC Meeting Forecast

Never one for subtlety, President Trump has seemingly lost all patience with FOMC Chairman Powell, subpoenaing him and threatening a criminal indictment ostensibly over cost overruns in the Federal Reserve’s building renovation earlier this month. Chairman Powell took the unprecedented step of issuing a weekend video address asserting that the threat was “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.”

With the Fed seemingly on hold for at least the next couple months, this represents a prime opportunity for President Trump to undermine Powell around the central bank’s meeting and nominate a successor, a move that Trump had previous vowed to do by the end of January. By formally making Powell a “lame duck” Chairman, Trump could steal some of the thunder back from the central bank and prompt forward-looking markets to price in lower interest rates in the latter half of the year.

For markets, the obvious question is, “Who will Trump nominate?” After months of mixed messaging, it looks like the tides are shifting against current NEC Director Kevin Hassett (who Trump has hinted he wants to remain in his current role given his effectiveness in the media). Blackrock’s Head of Fixed Income Rick Reider apparently had a strong interview with the President earlier making him the current favorite in betting markets, though former Fed Governor Kevin Warsh and current Fed Governor Christopher Waller are also seen as strong contenders:

Source: Polymarket

Broadly speaking, traders would view Reider and Waller as more neutral candidates that would be more likely to protect the independence of the institution (read: higher interest rates and lower inflation long term), whereas vocal Fed-critic Warsh and Kevin Hassett are perceived as more likely to kowtow to Trump’s preference for lower interest rates. If either of the latter two candidates is nominated, traders may look to sell the US dollar and bonds in favor of risk assets.

One way or another, market volatility around this week’s Fed meeting is unlikely to be driven by the current interest rate decisions and outlook and more by the leadership of the central bank once Powell steps down in May.

US Dollar Technical Analysis – EUR/USD Daily Chart

Source: StoneX, TradingView

Turning our attention to the charts, the world’s most widely-traded currency pair is on the verge of a breakout to 4.5-year highs around 1.1920 as we go to press. EUR/USD has tacked on more than 300 pips in the last week and a half, boosted by broad-based selling in the US dollar.

This creates a clear “line in the sand” for traders heading into the central bank’s meeting: If we see a more dovish outlook or a Warsh/Hassett nomination for Fed Chairman, EUR/USD could accelerate its gains for a run at the psychologically-significant 1.20 level. Meanwhile, continued neutrality on the part of Chairman Powell and/or a dollar-reassuring nomination of Reider or Waller could lead to a near-term EUR/USD reversal and retracement back down toward previous-resistance-turned-support in the 1.1820 zone, if not lower in time.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX