Federal Reserve keeps interest rates unchanged even as Trump continues to insist they be lowered

The Federal Reserve held its key interest rate steady at approximately 3.6% on Wednesday, pausing after implementing three rate cuts last year. Chair Jerome Powell expressed optimism during a news conference, noting that the economic outlook “has clearly improved since the last meeting” in December.

With the economy maintaining healthy growth and unemployment rates appearing to stabilize, Fed officials see little urgency for additional rate reductions. The central bank’s statement indicated positive signs of stabilization in the job market, a welcome development that Powell suggested should enhance hiring prospects over time.

The decision was not unanimous, with two officials dissenting. Governors Stephen Miran and Christopher Waller both favored another quarter-point reduction. Miran, appointed by President Donald Trump in September, has consistently advocated for more aggressive cuts, having dissented at three previous meetings in favor of a half-point reduction. Waller is reportedly under White House consideration as a potential successor to Powell, whose term concludes in May.

The Fed’s cautious approach stems partly from persistent inflation concerns. Most policymakers anticipate further rate cuts this year but want more evidence that inflation is approaching their 2% target. According to the Fed’s preferred measure, inflation stood at 2.8% in November, slightly higher than a year earlier.

The decision to maintain current rates will likely intensify criticism from President Trump, who has repeatedly criticized Powell for not implementing more dramatic rate reductions. Lower Fed rates typically decrease borrowing costs for mortgages, car loans, and business financing, although these rates are also influenced by broader market forces.

A key question facing the central bank is how long it will maintain this holding pattern. The rate-setting committee remains divided between officials reluctant to cut rates further until inflation subsides and those favoring additional reductions to support employment. In December, only 12 of the 19 committee participants supported at least one more rate cut in 2024. Most economists predict the Fed will implement two cuts this year, likely beginning in June or later.

Trade policy and tariffs continue to influence the Fed’s decision-making process. When questioned about whether tariff impacts on inflation had run their course, Powell indicated that “a lot of it has” and characterized import taxes as creating primarily one-time price increases rather than ongoing inflationary pressure. “The expectation is that we will see the effects of tariffs flowing through goods prices peaking and then starting to come down, assuming there are no new major tariff increases,” Powell explained, adding that this trend should continue throughout the year.

The Fed meeting occurred amid unprecedented political pressure. Powell revealed on January 11 that the Fed had received Justice Department subpoenas as part of a criminal investigation into his congressional testimony regarding a $2.5 billion building renovation. Powell characterized these subpoenas as pretexts for punishing the Fed for not cutting rates more aggressively, though he declined to elaborate further during Wednesday’s press conference.

Last week, the Supreme Court took up Trump’s previous attempt to remove Fed governor Lisa Cook over mortgage fraud allegations, which she denies. No president has fired a Fed governor in the institution’s 112-year history. During oral arguments, the justices appeared inclined to allow Cook to remain in her position until the case concludes. When asked why he attended the hearing, Powell emphasized its significance: “This case is perhaps the most important legal case in the Fed’s history. And as I thought about it, I thought it might be hard to explain why I didn’t attend.”

Trump has indicated he’s close to naming Powell’s replacement, with an announcement potentially coming within days. However, the president’s attempts to pressure the Fed may have backfired, as Republican senators have expressed support for Powell and threatened to block Trump’s nominee.

Powell, who has the option to remain as a Fed governor beyond May, told reporters he hasn’t decided whether to stay or leave. When asked if he had advice for his successor, he responded succinctly: “Don’t get involved in elected politics. Don’t do it.”

Financial markets had anticipated the Fed’s decision to hold rates steady until at least June. This year’s voting members on the rate-setting committee include the seven board governors, the New York Fed president, and four regional Fed presidents: Beth Hammack (Cleveland), Neel Kashkari (Minneapolis), Lorie Logan (Dallas), and Anna Paulson (Philadelphia). All have recently expressed some skepticism about the immediate need for further rate cuts.

Economic indicators present a mixed picture. Expected larger-than-usual tax refunds in coming months could boost consumer spending and potentially stimulate hiring, which has remained weak despite economic growth. However, consumer confidence has fallen to an 11-year low according to the Conference Board’s January measure. Powell noted this paradox, observing that while consumers express pessimism in surveys, their spending remains robust, helping to drive economic growth.