The US Federal Reserve has held interest rates steady at its first policy gathering this year, citing robust economic growth, as the central bank resists President Donald Trump’s mounting pressure for cuts.
Trump has sharply escalated his targeting of the Fed since returning to the White House, seeking to oust a key official among its leadership in what chairman Jerome Powell said could be the “most important legal case” in the institution’s long history.
But on Wednesday, the Fed voted 10-2 to maintain rates at a range between 3.50% and 3.75%, an outcome that was widely expected as officials await more data on the world’s biggest economy.
In a statement on its decision, policymakers flagged that economic activity has been “expanding at a solid pace”, while the unemployment rate showed some “signs of stabilisation”.
But the rate-setting Federal Open Market Committee saw two dissents.
Fed Governor Stephen Miran and Christopher Waller – the latter is seen as a potential candidate to succeed chairman Jerome Powell – both backed a quarter-percentage-point rate cut instead.
The Fed has made quarter-point cuts at its last three policy meetings, as officials worried about the cooling jobs market. Miran, who was recently appointed by Trump, pushed for larger reductions each time.
But solid GDP growth, relatively low unemployment and stubborn inflation have provided reasons to pause, putting officials again at odds with Trump, who has repeatedly urged for lower interest rates.
Policymakers have warned that Trump’s actions could threaten the bank’s independence from politics.
Powell stressed at a press briefing Wednesday however that he did not believe the bank would lose its independence.
The President has been seeking to oust Fed Governor Lisa Cook over mortgage fraud allegations, while his administration launched an investigation into Powell over the bank’s headquarters renovation.
In a rare rebuke this month, Powell criticised the threat of criminal charges against him, saying this was about whether monetary policy would be “directed by political pressure or intimidation”.
He did not elaborate Wednesday on the probe.
On his appearance at the Supreme Court this month when Cook’s case was heard, however, Powell told reporters: “That case is perhaps the most important legal case in the Fed’s 113-year history.”
“As I thought about it, I thought it might be hard to explain why I didn’t attend,” he added.
The Fed is “in no hurry to cut interest rates again”, said Navy Federal Credit Union chief economist Heather Long, adding that she saw policymakers “in a stalemate”.
“Leaders like Miran and Waller who were worried about the labour market don’t have as many supporters now, and similarly, Fed leaders who were concerned about inflation also seem to have backed off,” she added.
But she expects a “shake-up” to come as Powell’s term as Fed chairman ends in May, with Trump’s new appointee taking office.
For now, Powell said the Fed would let economic data “light the way” on the future path of interest rates.
A weakening labour market could tip the balance in favour of a further rate reduction, while cooling inflation also allows for lower levels.
He noted an expectation that inflation from tariffs could top out in the “middle quarters” of the year, but cautioned that this was hard to predict with precision.
While much of the price effects from Trump’s tariffs have already flowed through the economy, Powell maintained that “we need to keep our eye on inflation and not declare victory prematurely”.
Financial markets generally expect the Fed to keep rates unchanged until its June meeting, according to CME FedWatch.
Looking ahead, all eyes are on how Powell’s successor shapes Fed policy.
Asked about advice for the new chairman, Powell said: “Don’t get pulled into elected politics.”
Analysts will be monitoring if the new Fed chief can corral the rest of the rate-setting committee into more cuts, and whether the bank can keep pursuing its mandate of low and stable inflation and maximum employment – independently of political influence.
- Agence France-Presse