After their first policy meeting since he returned to office, Federal Reserve officials left interest rates steady, which prompted President Donald Trump to criticize them.
In reference to Federal Reserve Chair Jerome Powell, he wrote on his Truth Social platform, “I will do it by unleashing American energy production, slashing regulation, rebalancing international trade, and reigniting American manufacturing because Jay Powell and the Fed failed to stop the problem they created with inflation.”
He said that inflation would never have been an issue if the Fed had focused less on DEI, gender ideology, green energy, and false climate change.
The president’s criticism follows days after he put pressure on policymakers to decrease interest rates, continuing his practice of making his opinions known in order to keep the Fed politically independent.
However, the central bank decided to hold off for the time being.
Fed officials adopted a more cautious stance on inflation in their news release announcing the decision, which experts usually interpret as a portent of the future. They simply mentioned that inflation is still rather high in their statement on Wednesday, removing a portion of a paragraph from their earlier announcement that stated that inflation has moved closer to their 2% target.
In a news conference after the announcement, Powell stated that while recent inflation data appeared to be positive, we shouldn’t overreact to two positive or two negative [inflation] readings.
Prior to Trump’s Truth Social post earlier on Wednesday, he informed reporters that he would not comment on the president’s remarks regarding interest rates. The public should have faith that we will carry on with our work as usual.
Powell claimed that he hasn’t spoken with the president directly. The greatest way for a central bank to function is through independence, according to a lot of study, he continued.
Following the ruling, all three of the major market indices finished lower, leaving interest rates uncomfortably high for many consumers taking out mortgages and auto loans. 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.
Trump has presented himself as the answer to persistent problems in what most economists believe to be a strong economy.
, Last week, during a videoconference to the World Economic Forum in Davos, Switzerland, Trump declared that he would insist on an immediate reduction in interest rates.
He told Fed officials last week via videoconference at the World Economic Forum in Davos, Switzerland, that he would demand a rapid cut in interest rates, saying, “I know interest rates much better than they do.” Trump, who selected Powell in 2017 and has vowed not to try to remove him before his tenure ends in May 2026, has also recently increased his criticism of Powell.
Since Trump departed office in January 2021, the U.S. economy has undergone significant transformation, and the nation is still dealing with the Covid-19 outbreak and acrimonious debates 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.
Despite consumers’ 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%.
Powell stated on Wednesday that he believes disinflation will continue on a gradual and occasionally rocky path. We don’t have to change our policy position quickly.
Greg McBride, Chief Financial Analyst of Bankrate, stated the matter more simply: He noted in a statement on Wednesday 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.
When asked about the possible effects of tariffs on the economy, Powell responded that there are many options.
We don’t know which countries, how much, or how long. We are unaware of reprisal. “We’re not sure how it will trickle down to consumers through the economy,” he said.
Whatever the final result, it is obvious that the Trump administration’s immigration and trade policies will influence the central bank’s actions this year. Ahead of the interest rate announcement on Tuesday, Joe Brusuelas, chief economist at the financial firm RSM, wrote 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.