The Federal Reserve on Wednesday held its interest rate target steady, defying a pressure campaign by President Donald Trump to lower rates.
After a two-day meeting of its monetary policy committee in Washington, the Fed announced it would hold its target for short-term interest rates at 4.25% to 4.50%. Investors anticipated the move. Notably, two Fed governors, Michelle Bowman and Christopher Waller, preferred a rate cut and dissented.
In a statement after the decision, the Fed noted that economic growth moderated in the first half of this year.
“Changes to government policies continue to evolve, and their effects on the economy remain uncertain,” Fed Chairman Jerome Powell said during a Wednesday press conference. “Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen.”
He said a reasonable base case is that inflationary effects would be short-lived and reflect a one-time shift in the price level.
Following the Fed’s decision and Powell’s comments, bond market prices indicated that investors think it is slightly more likely than not that the Fed holds rates steady again at its next meeting in September. That is a change from earlier this week, when investors generally expected a September rate cut.
The Fed’s target rate remains a full percentage point lower than it was when the Fed pivoted to cutting rates in September 2024. The rate has stayed the same since the start of 2025 and throughout Trump’s second term.
The meeting of the Federal Open Market Committee was the third since Trump imposed sweeping “Liberation Day” tariffs. While the tariffs initially rattled global markets and sparked fears of a recession, the markets have recovered, despite significant lingering uncertainty about global trade.
During the press conference, Powell also addressed Bowman and Waller, the two governors who dissented and preferred to lower interest rates. He said the two gave a clear explanation of their arguments during the two-day confab.
“This was quite a good meeting all around the table where people thought carefully about this and put their positions out there,” Powell said.
The Fed is targeting 2% inflation, and broadly speaking, inflation has fallen closer to that rate, but Fed officials do not want to start cutting rates too soon and cause inflation to spike again.
The most closely watched consumer price index ticked up to 2.7% for the year ending in June, a development that may have influenced the monetary policy committee’s decision-making this week.
The central bank has a dual mandate: price stability and maximum employment. So even if inflation were a bit high, the Fed might decide to cut rates if unemployment started rising or there were signs of a recession on the horizon.
For context, the economy again beat expectations in June and added 147,000 jobs, an encouraging sign. The unemployment rate fell slightly to 4.2%, the Bureau of Labor Statistics reported.
Also, economic output has been up. U.S. gross domestic product expanded at a 3% annual rate in the second quarter, the Bureau of Economic Analysis reported on Wednesday morning ahead of the Fed decision. That report is a large change from the first quarter of this year, when GDP fell 0.5%, although the drop was because of a big increase in imports from importers trying to get ahead of Trump’s tariffs.
Trump and his allies have been highly critical of Powell, accusing him of mismanaging the central bank and keeping interest rates too high for too long.
The administration has also cast cost overruns of the Fed headquarters renovations as another example of mismanagement. In an unusual move, Trump visited the headquarters and received a personal tour from Powell. Trump appeared to have left with the impression that Powell would begin to push for lower interest rates.
Powell “said to me very strongly, ‘The country is doing well.’ He said, ‘Congratulations, the country is doing really well,’” Trump told reporters at the White House. “And I got that to mean that I think he’s going to start recommending lower rates.”
SHAKY TRUMP-POWELL TRUCE COULD BREAK NEXT WEEK WITH FED RATE DECISION
The further pause this week will likely further embolden Trump administration officials in their war against Powell.
Bill Pulte, the director of the Federal Housing Finance Agency, has emerged as an attack dog for Trump against Powell. Typically, the director of the FHFA, which has oversight of the government-sponsored enterprises Fannie Mae and Freddie Mac, is not a well-known person, but Pulte has gained significant attention repeatedly bashing Powell to his 3 million followers on X.
