Political heat on the Fed could keep rate cuts slower than markets hope
Federal Reserve chair Jerome Powell’s criminal investigation lands at a delicate moment for monetary policy, but the fallout may run counter to what some borrowers expect.
Instead of nudging officials toward easier policy, the probe could make the Fed more cautious about cutting rates, an economist at Oxford Economics argued.
In a new research note, Oxford Economics said the investigation into Powell over his June testimony on Fed building costs is “unlikely to influence the path for monetary policy” in a direct way.
But the political pressure around the case risks hardening officials’ resolve to show they were not bending to the White House, even as inflation moves closer to target.
“The criminal investigation into Federal Reserve Chair Jerome Powell is unlikely to influence the path for monetary policy, and could even backfire by making officials more reluctant to cut rates in the coming months and years,” Bernard Yaros, lead US economist at Oxford Economics, said.
“Our subjective odds are rising that Powell stays beyond the end of his chairmanship in May, and that the confirmation process for any Fed nominee will be more complicated and possibly contentious,” Yaros said.
“The fact that market measures of inflation expectations have remained calm indicates that markets are brushing off the investigation as having little, if any, impact on Fed independence.”
Despite the political storm, Oxford Economics keeps its baseline forecast that the Fed would cut rates twice this year.
“Growth remains strong, unemployment edges lower, and inflation sustainably decelerates toward its 2% target,” Yaros said.
The report argued that the bigger structural threat to Fed independence lies in a pending Supreme Court case over whether president Trump could remove Fed governor Lisa Cook before her term expires, a decision that could open the door for future presidents to “stack the central bank.”
For mortgage professionals, the message cuts against hopes for rapid relief. Economists described a cautious Fed even after last year’s hawkish cuts, warning that officials were inclined to move slowly on additional easing despite softer labor data. Powell has also repeatedly stressed a higher bar for additional easing, a stance that already limits how far long‑term yields had fallen.
If Yaros is right, mortgage rates may still edge lower over 2026 but are unlikely to collapse, echoing outside forecasts that saw the 30‑year fixed drifting toward, but not far below, the high‑5% to low‑6% range.
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