The US Federal Reserve kept interest rates unchanged on Wednesday, defying strong political pressure from President Donald Trump to slash borrowing costs, although divisions emerged among policymakers.
The US central bank’s call to hold interest rates at a range between 4.25% and 4.50% comes amid a flurry of data releases this week, including an early estimate showing the world’s biggest economy returned to growth in the second quarter.
But that uptick was influenced heavily by a pullback in imports after businesses rushed to stockpile inventory before Trump’s expected tariffs in the first quarter.
Fed policymakers are also expected to have considered an incoming raft of new tariff rates that Trump has promised to impose, starting on Friday.
This was the fifth consecutive Fed meeting where rates were held steady.
In announcing its decision, the bank said: “Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year.
“Uncertainty about the economic outlook remains elevated,” as is inflation, somewhat, the Fed added at the end of its two-day policy gathering.
Asked about the impact of tariffs on the US economy, Fed Chairman Jerome Powell flagged heightened uncertainty surrounding trade talks.
“It’s been a very dynamic time for these trade negotiations,” he told reporters at a press conference. “We’re still a ways away from seeing where things settle down.”
The Fed’s decision came with two dissents from Fed governors Christopher Waller and Michelle Bowman, who previously signalled openness to a July rate cut.
While disagreements among the rate-setting Federal Open Market Committee were expected by markets, analysts note that it marks the first time since the 1990s that there have been dissents by two governors.
Powell maintained on Wednesday that it was a “good meeting” with thoughtful arguments around the table.
“The economy is in good shape, but it’s an unusual situation,” he said, noting risks to both the Fed’s mandates of maximum employment and price stability.
“It’s a high-wire act for the Fed, because they’re balancing a lot of risks without a net,” KPMG chief economist Diane Swonk told AFP before the Fed’s decision.
“Some of the most tariff-sensitive sectors have begun to show price increases, but the bulk of any inflation bump due to tariffs is still ahead of us,” she said.
Meanwhile, there are cracks in the foundation when it comes to the labour market, she said, adding that “it doesn’t take much of a pick-up in layoffs to have a bigger effect on demand”.
The outcome of unchanged rates was sure to anger Trump, who has lashed out repeatedly at the independent Fed chairman for not lowering levels sooner – calling him “too late,” a “numbskull” and “moron”.
Trump, citing Wednesday’s better-than-expected GDP growth figures, earlier said Powell “must now lower the rate”.
The repeated attacks have fuelled speculation that Trump may attempt to fire Powell or otherwise pressure him to resign early.
Powell’s term as Fed Chairman ends in May 2026, and he defended on Wednesday the independence of the central bank as having “served the public well”.
Economists widely anticipated disagreement from governors Waller and Bowman, as they had signalled willingness to reduce rates as soon as in July.
Yet, “dissents by two governors are rare and haven’t occurred since 1993,” said economist Nancy Vanden Houten at Oxford Economics.
Waller flagged this month that indicators do not point to a particularly healthy private sector jobs market, making the case for a July cut.
Analysts said financial markets would already have braced for two dissents.
But Swonk warned: “What I worry about is how, in this hyper-politicised environment, that’s perceived.”
“Multiple dissents by governors, who are closest to the Chair, could signal an unintended view that they have lost confidence in the chairman,” she noted.
Looking ahead, Swonk warned: “It’s going to get tougher over the summer.”
“Tariff-induced price pressures are starting to filter through the economy,” said EY chief economist Gregory Daco in a note.
“More demand erosion is likely in the months ahead.”
-Agence France-Presse