Markets head into a pivotal week with a closely watched Federal Reserve rate decision at the forefront, heightened by fresh concerns over the central bank’s independence following a criminal investigation involving Chair Jerome Powell. At the same time, heavyweight technology companies are set to report earnings, with investors eager for clearer evidence that massive artificial intelligence spending is translating into growth. Adding to the risk backdrop, President Donald Trump has issued a new tariff threat against Canada, keeping geopolitical uncertainty firmly in focus.
1. Fed decision takes center stage
The highlight of the week is likely to be Wednesday’s interest rate decision from the Federal Reserve, following a two-day policy meeting.
Officials will assess how best to set borrowing costs at a time when the U.S. economy remains broadly resilient. Employment — a key reason behind a series of rate cuts in 2025 — appears stable, with subdued hiring but limited layoffs. Inflation, the Fed’s other core mandate, has eased but remains above the 2% target.
Some economists warn the economy is becoming “K-shaped,” where higher-income households and corporations account for much of the growth, while lower-income groups struggle with rising living costs.
Against this backdrop, markets widely expect rates to remain unchanged at 3.5%–3.75%. CME FedWatch data suggests the next rate cut is unlikely before June.
2. Focus on Powell’s successor
This week’s Fed meeting also comes amid repeated pressure from President Trump for swift and aggressive rate cuts.
Longstanding worries about political influence over the Fed intensified earlier this month when the Justice Department opened a criminal investigation into Chair Jerome Powell. In an unusual public response, Powell criticized the probe as an attempt to steer monetary policy in Trump’s preferred direction.
With only months left in his term, markets are watching closely to see whether Powell remains on the Fed’s policy-setting board once he steps down as chair.
Attention is also turning to who might replace him. Prediction markets now favor Rick Rieder over former Fed Governor Kevin Warsh, while Trump has suggested he may already have a single candidate in mind.
3. Big tech earnings under scrutiny
Earnings season heats up with results due from major technology players, including Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT) and Apple (NASDAQ:AAPL).
Driven by enthusiasm around artificial intelligence, these companies have dominated equity markets in recent years. Their push to lead the AI race has triggered a surge in capital spending, particularly on data centers and advanced semiconductors.
While investors have largely accepted the heavy outlays so far, expectations for tangible revenue gains are rising. Analysts have described 2026 as a potential “show me” year for big tech, making this week’s earnings reports an early test of whether returns are starting to materialize.
4. ASML in the spotlight
In Europe, attention turns to ASML (EU:ASML), the world’s largest supplier of chipmaking equipment, which reports on Wednesday.
The Dutch group’s valuation recently crossed $500 billion after key customer TSMC unveiled larger-than-expected capital spending plans to meet booming AI chip demand. ASML has since reinforced its position as Europe’s most valuable listed company.
However, its guidance for the current year has been relatively cautious, with sales potentially flat. This has raised questions about whether the pace of new factory construction is keeping up with surging AI-driven demand.
5. Trump renews tariff threat
Geopolitical risk returned to the fore after Trump said he would impose a 100% tariff on Canada if it were to strike a trade agreement with China.
Trump warned on social media that Prime Minister Mark Carney, who recently visited China and spoke in Davos about smaller nations resisting economic pressure from global powers, could endanger Canada by pursuing such a deal.
“China will eat Canada alive, completely devour it, including the destruction of their businesses, social fabric, and general way of life,” Trump wrote, adding that “all Canadian goods and products coming into the U.S.A.” would face a 100% import tax if an agreement were reached.
Carney responded that Canada has “no intention” of seeking a free trade deal with China, stressing that Ottawa would honor its commitments under an existing pact with the U.S. and Mexico.
“[W]e don’t think investors need to spend a lot of time worrying about Trump’s 100% Canada tariff actually coming to fruition, but the fact he continues to impetuously make these threats is gradually undermining sentiment,” analysts at Vital Knowledge said.