The United States Federal Reserve has left its benchmark rate unchanged despite mounting pressure from President Donald Trump to cut rates.
On Wednesday, the Fed said it will leave its short-term rate steady at 4.25 percent to 4.5 percent.
The central bank’s decision was largely in line with expectations, and it has not cut interest rates since December.
The decision comes as policymakers weigh signs of a weakening economy. US retail sales numbers fell more than expected in its report from the US Department of Commerce yesterday. Last week’s jobless claims report from the US Department of Labour came in at its highest in eight months at 248,000.
However, the last jobs report showed the unemployment rate was steady at 4.2 percent, indicating the labour market, while slowing, remains fairly stable.
“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook has diminished but remains elevated,” the central bank said in a statement.
Powell pointed out the labour market was not a source of major inflationary pressures, and that the central bank was holding rates steady to respond to uncertainty driven by Trump’s economic and immigration policies as well as consumer prices, a key inflation gauge for the Federal Reserve. The most recent report showed a 2.1 percent increase for the month of April.
“We’ve seen goods inflation moving up a bit,” Powell said. “We do expect to see more of that during the course of the summer. It takes time for tariffs to work their way through the chain of distribution to the end consumer. We are beginning to see effects and we do expect to see more of them in the coming months,” he added.
Economists agree.
“While the Fed is getting pressured to move on rates, the US economy is proving more resilient than expected. The current consensus growth forecast for the US in 2025 is down to just 1.4 percent. Given the most recent inflation reading of 2.4 percent, that would mean the lowest nominal growth rate since 2020. The next revision to US growth could be higher, and that warrants waiting,” Scott Helfstein, SVP, head of investment strategy at Global X told Al Jazeera.
“The jobs number has consistently come in better than expected. The Fed mandate is full employment and price stability. While the risks to both have been elevated amid policy uncertainty, weakness in labour or accelerating inflation is simply not showing up in the data. That is the focal point of the Fed calculus here.”
“Fed Chair Jerome Powell has little urgency to ease. But if any easing were to have occurred, it would have been hugely stimulative, and would have lowered US debt interest expense,” Michael Ashley Schulman, partner and chief investment officer at Running Point Capital Advisors, told Al Jazeera.
Policymakers are looking at the looming and consistently shifting changes to Trump’s tariff policies as well as the escalating tensions in the Middle East. While oil prices were on the decline before Israel’s attack last week on Iran and its retaliatory strikes, the concerns about a closure of the Strait of Hormuz as tensions escalate have fueled concerns that prices could go up in the coming weeks.
Trump criticises Powell
Before the rate announcement, Trump expressed disappointment in the central bank’s decision to hold rates steady in the past few months.
“Powell’s too late,” he said, referring to his desire for rate cuts. “I call him ‘too late Powell’ because he’s always too late. I mean, if you look at him, every time I did this I was right 100 percent, he was wrong,” Trump said.
He added that he “may have to force something” but it is not clear what Trump meant by that.
He also suggested that he should lead the central bank. “Maybe I should go to the Fed,” Trump said. “Am I allowed to appoint myself at the Fed? I’d do a much better job than these people.”
Powell’s term is set to expire next May, and Trump has recently walked back his rhetoric on firing the central bank head.
“What I’m going to do is, you know, he gets out in about nine months, he has to, he gets fortunately terminated … I would have never reappointed him, [former President Joe] Biden reappointed him. I don’t know why that is, but I guess maybe he was a Democrat … he’s done a poor job,” Trump said.
At the news conference, Powell responded to the stream of attacks. “Everything we do is in service to our public mission,” he said.
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