Following the conclusion of their most recent two-day policy meeting—the first to be held during the second Trump administration—Federal Reserve officials kept interest rates unchanged. Despite pressure from President Donald Trump on officials to decrease rates, that choice was made.
One indication of the central bank’s reasoning is that in its press release announcing the decision, which analysts usually interpret as a sign of the way forward, it removed a portion of a line stating that inflation has moved closer to its 2% target, noting only on Wednesday that it is still somewhat elevated.
In December, consumer prices were 2.9% higher on average than they were during the same period last year. This yearly pace has been above the Fed’s 2% target for months.
Following the announcement, all three major market indices experienced a decline, with the Fed adopting a more cautious stance on inflation. At 2:30 p.m. ET on Wednesday, Fed Chairman Jerome Powell will discuss the central bank’s current outlook on interest rates and the economy.
Trump stated last week in a comprehensive videoconference speech to the World Economic Forum in Davos, Switzerland, that he would seek an immediate cut in interest rates and that they should be falling globally. Interest rates ought to track us everywhere.
The remarks continued Trump’s practice of making his monetary policy opinions public, which previous American presidents have avoided for a long time in order to keep the Fed politically independent.
In follow-up remarks following his Davos speech, he stated, “I know interest rates much better than they do.” Additionally, he reiterated his criticism of Powell, whom he nominated in 2017 and has vowed not to fire before Powell’s term expires in May 2026.
Since Trump’s departure in January 2021, the U.S. economy has undergone significant change, with the nation still engulfed in the Covid-19 outbreak and acrimonious disagreements regarding lockdown protocols to battle it.
Inflation has significantly decreased following a price spike during the epidemic that severely damaged the budgets of many households. After companies added more than a quarter-million jobs, unemployment decreased slightly to 4.1% in December from 4.2% the previous month, allaying concerns about a labor market that has held up well despite cooling.
Meanwhile, despite households’ growing emphasis on value, consumer expenditure has remained stable. Federal researchers said in December that the GDP, which is mostly driven by the consumption of goods and services, had increased by at least 3% for two consecutive quarters.
These and other indicators, according to analysts, show that the economy is still doing well in spite of the challenging final mile in the inflation struggle, which would lessen the need for a new Fed boost just yet. After reducing rates for three straight meetings, the central bank has scheduled two rate cuts this year, bringing its benchmark rate down from a 20-year high range of 5.25%–5.5% to the current level of 4.25%–4.5%.
Greg McBride, chief financial analyst at Bankrate, stated in a statement Wednesday afternoon that the Fed is aware that the pace of progress toward 2% inflation has slowed. In their post-meeting statement, they made no mention of the likelihood of rate reduction being resumed at the upcoming meeting in March. When that time comes, we will need a string of strong inflation numbers to get there.
According to economists, it has become increasingly difficult to maintain borrowing costs high enough to restrain price increases without causing the economy to enter a recession.That is mostly because of Trump’s economic agenda, especially his tariffs, of which his first policy action is anticipated on Saturday.
It is obvious that the Trump administration’s immigration and trade policies will influence the central bank’s decisions this year. Prior to the rate announcement on Tuesday, Joe Brusuelas, chief economist at the financial firm RSM, stated in a note. The Fed’s long-held 2% inflation objective would be at jeopardy if these actions resulted in greater inflation or, more importantly, increased inflation expectations.