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20 hours ago
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Federal Reserve officials decided on Wednesday to hold interest rates steady as uncertainty over Donald Trump’s impact on the US economy looms and inflation remains above the central bank’s target levels.
This is the first time Fed policymakers have met since the president, who has made clear he wants rates to fall, returned to the White House. The benchmark interest rate now sits at a range of 4.25% to 4.5%.
Jerome Powell, the Fed chair, declined to provide “any response or comment whatsoever” on the president’s public demands for lower rates. “The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals,” he said in a press conference on Wednesday.
While the Fed has been cutting rates since the fall, its latest decision amounts to the first time it has not reduced them since September.
The Fed uses interest rates to balance price increases and stability in the labor market. During the pandemic, interest rates were at near-zero levels, making it cheaper for Americans to borrow money for payments such as mortgages, car loans and other types of debt.
But a host of economic influences – supply chain issues, federal stimulus and high consumer spending, for example – drove inflation up to 9.1%, its highest level in a generation, in the summer of 2022.
Since then, the Fed has been in a long fight to tamp down price increases. Interest rates sat at approximately 5.3% for a year and a half – the highest interest rates in over a decade – before the Fed started its cutting campaign in September.
Even though inflation has gone down since that time, it has remained stubbornly above the Fed’s target rate of 2%. In December, inflation was at 2.9%, a slight uptick compared with November. Meanwhile, the jobs market showed an unexpected surge of growth last month, with more than 250,000 jobs added to the economy. The unemployment rate has remained at relatively low levels, about 4%.
The start of Trump’s second term has cast a shadow of uncertainty over the US economy, particularly as the White House prepares to levy tariffs over Mexico and Canada, two key trading partners of the US. Trump said that the two countries could be subject to a 25% tariff as soon as 1 February. Trump has also threatened a 10% tariff on China, and said he was weighing a levy on imports from the European Union.
While Trump has pledged to “rapidly” bring down consumer prices, economists have warned that his tariff plans could increase consumer prices in the US, as companies hit with tariffs often pass on the impact to their customers.
On Wednesday, Powell said Fed policymakers would be “watching carefully” as the Trump administration fleshed out new policies, to gauge their impact on the economy. This was “no different” to how the central bank has handled other new administrations, he added.
Though the Fed has historically maintained bipartisan separation from the White House, Trump has claimed he understands interest rates better than the central bank’s officials, potentially teeing up conflict between him and the central bank.
“I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making the decision,” Trump told reporters last week.
Powell, has taken pains to remain politically neutral when questioned about potential hostility from the White House. When asked in November whether he would resign if Trump asked him to, Powell replied with a blunt “no” and said that Trump demoting Fed officials from their governorships was not “permitted under the law”.
