Fed Holds Rates Steady Despite Pressure from Donald Trump
These new trade deals are likely to generate "inflationary pressures," which the Fed will be closely watching.
Quick overview
- The U.S. Federal Reserve decided to keep interest rates unchanged amid pressure from President Trump for monetary easing.
- Despite the Fed's decision, there was notable dissent within the Federal Open Market Committee, the highest in decades.
- Trump has proposed a drastic cut to the benchmark rate, which contradicts current economic indicators like high inflation.
- Two Fed Board members appointed by Trump voted against the decision to hold rates steady, highlighting internal disagreements.
Markets widely expected no change in monetary policy, even as President Donald Trump escalated his pressure campaign on Jerome Powell.
The U.S. Federal Reserve left interest rates unchanged on Wednesday, just six days after President Donald Trump once again called for sharp monetary easing by the central bank. Despite the unchanged stance, the decision revealed cracks within the Federal Open Market Committee (FOMC), showing the highest level of dissent in decades.
Trump has suggested cutting the benchmark rate from its current range of 4.25%–4.50% down to just 1%—a move that runs counter to current economic conditions. Inflation remains well above the Fed’s 2% target, and the labor market has yet to show clear signs of contraction.
No Surprises for the Market
The Fed held rates steady partly because recent inflation data came in slightly higher than expected, but mainly due to the fact that in recent days, several trade agreements have been finalized—most notably with the European Union, as well as with China.
These new trade deals are likely to generate “inflationary pressures,” which the Fed will be closely watching.
The market had already priced in virtually a 100% probability that rates would remain unchanged. More interesting, however, is the implied probability of a rate cut in September: on Monday, it stood at 64%, rose to 68% after the JOLTS data, and then dropped to 61% following strong ADP jobs and GDP figures.
Cracks Within the Fed
Attention turned to two Fed Board members appointed by Trump—Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman—both of whom supported a rate cut.
According to the Fed’s statement released Wednesday, Waller and Bowman voted against the decision to hold rates steady, marking the most significant internal disagreement within the FOMC since 1993.
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