FOMC Preview – Currency Thoughts

FOMC Preview

January 28, 2026

The eight scheduled Federal Open Market Committee meetings scheduled each year have become instances of very high theater. The progressive ramping up of pressure on the committee from the Trump administration hit new heights during the seven weeks since the group last met, forcing Chairman Powell is issue an unprecedented statement on January 11th defending the Fed and doubling down on the necessity for firewalls against political interference in monetary policymaking if the shared dual goals of politicians and central bankers of price stability and full employment are to be achieved. Powell began,

Good evening.
On Friday, the Department of Justice served the Federal Reserve with grand jury subpoenas, threatening a criminal indictment related to my testimony before the Senate Banking Committee last June. That testimony concerned in part a multi-year project to renovate historic Federal Reserve office buildings. I have deep respect for the rule of law and for accountability in our democracy. No one—certainly not the chair of the Federal Reserve—is above the law. But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure. This new threat is not about my testimony last June or about the renovation of the Federal Reserve buildings. It is not about Congress’s oversight role; the Fed through testimony and other public disclosures made every effort to keep Congress informed about the renovation
project. Those are pretexts. 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. This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation.

U.S. economic data since December 10 when the Fed did cut its interest rate target do not justify reducing the rate further at this time. All of the drop in non-farm payroll jobs last quarter occurred in October, and that was followed by improved results in both November and December. Immigrant deportations and a tight squeeze on new legal immigration dominates lower job creation. The jobless rate is still enviably low at 4.4%. Real GDP growth averaged a robust 4.1% at an annualized rate in the second half of 2025. Personal consumption growth of 3.5% last quarter attests to continued spending in spite of low consumer confidence.

The dollar has had a difficult year. It has fallen 2.4% against the euro since the December FOMC decision and 12.7% over the FOMC met in January 2025. Against the yen, the dollar is 1.7% below its level on December 10. Dollar weakness is important because whereas inflation measures change in the internal value of U.S. money, exchange rate movements showcase change in the external value of U.S. money. In time, the two ought to move more or less in tandem. When U.S. monetary policy periodically ignored dollar weakness in the 1970’s, U.S. domestic inflation only got worse. Flash forward to the present, and one still finds examples, for instance in Turkey and Hungary, where political interference in monetary policy management has correlated with spikes in inflation.

The biggest financial market movements since the December FOMC meeting involve precious metals like gold, which has soared 26%. The 10-year Treasury yield is now nine basis points higher than then, while WTI oil now fetches 8% more then it did back then.

Tags: FOMC preview

ShareThis

This entry was posted
on Wednesday, January 28th, 2026 at 10:23 am and is filed under Central Bank Watch.
You can follow any responses to this entry through the RSS 2.0 feed.