Fed Keeps Rates Steady for Fifth Consecutive Meeting
The US Federal Reserve held interest rates steady on Wednesday, keeping the target range between 4.25% and 4.50%. This is the fifth straight meeting the rates have been left unaltered. It comes in the face of fresh economic and political pressures largely from President Donald Trump, who has persistently demanded bold rate cuts.
The Fed’s move comes on the heels of a recent estimate indicating modest growth in the US economy in the second quarter. That growth was fueled largely, though, by a decline in imports, as businesses scrambled to stockpile inventory ahead of Trump’s anticipated tariffs. With additional tariff increases in the works, the Fed observed that growth in economic activity “moderated” during the first half of the year.
Divisions Emerge Inside the Fed
Two current Fed governors, Christopher Waller and Michelle Bowman, voted against the final decision for the first time since 1993. Both had voted for a possible July rate cut earlier, citing weak job data and preliminary signs of weakening demand. Their opposition indicates increasing internal discord over the direction to take in response to the changing economic environment.
These types of dissents by governors don’t happen often, particularly when they sit so near the Chair,” remarked Nancy Vanden Houten, Oxford Economics’ lead US economist. The dissent has also questioned possible fissures within the Fed’s leadership and whether confidence in Chair Jerome Powell is declining among his closest allies.
Trump’s Frustration with Powell Grows
President Trump has increased his war of words against Powell, denouncing him as “too late,” a “numbskull,” and even a “moron” for not cutting interest rates. On Wednesday, after more robust-than-anticipated GDP growth figures, Trump once again called for rate cuts immediately. His public disparagement has fueled speculation that he will attempt to push Powell from the role before his term expires in 2026.
Despite increasing political pressure, Powell is likely to eschew confrontation. Analysts will look for him to project a tone of “cautious patience” at his post-meeting press conference. JP Morgan’s chief US economist Michael Feroli said Powell won’t be responding to speculation about his job security, and instead will work to preserve the Fed’s autonomy.
Tariff Worries Cloud Economic Outlook
Economists are cautioning that the impact of new tariffs is already starting to ripple throughout the economy. Sectors most exposed to tariffs are already experiencing signs of increased prices. “The lion’s share of the inflationary effect is still in front of us,” wrote Diane Swonk, KPMG chief economist.
EY’s Gregory Daco pointed out that businesses are reporting softer earnings and increasing input prices. These inflationary pressures are now starting to have an effect on consumer spending with the slowdown in retail sales already being seen. “Additional demand erosion is on the horizon in the coming months,” Daco said.
With inflation still high and economic instability increasing, the Fed’s way forward continues to be difficult. Navigating through political pressures, market expectations, and changing economic data will involve sensitive maneuvering in the coming months.
