The Federal Reserve left interest rates unchanged on Wednesday, resisting pressure from President Trump to reduce them as his escalating trade disputes threaten U.S. economic growth.
The central bank’s monetary policy committee emphasized that it’s monitoring developing risks closely, however, and Chairman Jerome Powell said during a news conference that a number of members believe rates may need to decrease in the future.
“There wasn’t much support for cutting rates at this meeting,” he added, explaining that members want more data on the economic impacts of trade policy, particularly on job growth.
That consensus left the benchmark federal funds rate at a range of 2.25% to 2.5%, fulfilling a prediction from Wall Street that a reduction isn’t likely until later this year. Trading in interest-rate futures indicated only a 24% chance of a cut on Wednesday, though that jumps to 65% at the committee’s next meeting, at the end of July.
Swiss lender UBS doesn’t expect rates to fall even then, particularly if U.S. trade talks with China manage to stave off any further increase in tariffs. So far, the White House has imposed 25% duties on $250 billion of Chinese imports and threatened to tack them onto another $325 billion of goods if the two countries can’t reach a deal to give American companies more access to China’s markets and halt Beijing’s appropriation of U.S. technology.
The tariffs, which drive up prices of goods sold in the U.S., come on top of levies on steel and aluminum. Trump has also threatened duties on auto imports as well as goods from Mexico if that country doesn’t live up to his expectations on curbing illegal immigrant traffic across the southern U.S. border.
“The collapse of the China trade deal and especially the threat of tariffs on Mexico really rattled markets, and introduced a whole lot of uncertainty into the economic outlook,” said Greg McBride, chief financial analyst at Bankrate.com.
Despite warnings from Corporate America that the trade dispute is undermining the benefits of GOP-led tax cuts in 2017, UBS believes economic growth will be sufficient for the Fed to maintain current rates for now, characterizing a September reduction of 25 basis points as “plausible” and a December cut as “possible.”
Bank of America and British lender Barclays both predict the Fed will be forced to act sooner. Barclays economist Michael Gapen expects rates to drop by 75 basis points — the equivalent of three 25 basis-point cuts — before the end of December, which might soothe some of the tension in Trump’s relationship with Powell, the Fed chairman he hand-picked to succeed Janet Yellen.
Powell fell from favor less than a year after his 2018 appointment when the president blamed December stock-market volatility on the central bank’s four rate hikes within a 12-month period.
Trump, who was told that he lacked the power to fire Powell without cause, has alternately berated and pushed the Fed, ramping up the pressure this week.
The chief executive noted Tuesday that European Central Bank President Mario Draghi’s statment this week that the trading bloc’s slow growth might warrant more monetary stimulus such as rate cuts had helped conditions in the region.
“They have a much different stance than our folks do,” Trump told reporters, arguing that Europe was treating the U.S. unfairly. “I want to be given a level playing field. And so far, I haven’t been.”
Should Trump attempt to carry out his wish to remove Powell, the chairman told reporters Wednesday he believes the law intended to ensure the Fed’s independence is clear.
“I have a four-year term, and I fully intend to serve it,” he said, declining to comment further on the president.
The Fed’s “independence from direct political control,” Powell noted, is “an important feature that has served both the country and the economy well.”
