Despite intense pressure from President Trump, the Federal Reserve has maintained interest rates, a decision marked by rare internal dissent and ongoing uncertainty surrounding the economic impact of tariffs.
The Federal Reserve has once again opted to hold interest rates steady at their current range of 4.25% to 4.5%, defying persistent calls from President Donald Trump for immediate cuts to borrowing costs. This decision, widely anticipated by markets, marks the fifth consecutive meeting where the central bank has maintained its benchmark rate.
While the decision to hold rates was expected, the vote revealed an unusual split within the Federal Open Market Committee (FOMC). For the first time in over three decades, two members of the board, Governors Michelle Bowman and Christopher Waller, dissented from the majority, advocating for a quarter-point rate cut. Both Bowman and Waller are Trump appointees and have previously expressed concerns about the potential for a weakening labor market and the impact of tariffs on economic activity.
Their dissent signals a growing internal debate at the Fed regarding the appropriate timing for easing monetary policy. While the majority of policymakers, including Fed Chair Jerome Powell, remain cautious, the dissenting votes suggest that support for lower rates may be broadening within the central bank.
The Fed’s decision comes amidst a mixed bag of economic data. Recent figures showed the US economy grew at an annual rate of 3% in the second quarter of this year, rebounding from a contraction in the first three months. However, this seemingly robust growth was largely driven by a significant drop in imports as President Trump’s tariffs took effect, leading some economists to suggest the underlying economic momentum is waning. As Jim Thorne, chief market strategist for Wellington-Altus Private Wealth, put it, “Forget about the headline number. The underlying data is suggesting an economy that is losing momentum.”
Inflation also remains a key concern, ticking up to 2.7% in June, still above the Fed’s 2% target. Fed Chair Powell has repeatedly emphasized the central bank’s commitment to bringing inflation back down, despite the expected price increases from tariffs.
President Trump has been vocal in his criticism of the Fed’s stance, going as far as to nickname Chairman Powell “Mr. Too Late” and suggesting lower rates would save the government money on debt payments and boost the housing market. He has even toyed with the unprecedented idea of firing Powell.
However, Powell has consistently defended the Fed’s independence, asserting that monetary policy decisions are made based on economic data and the central bank’s dual mandate of maximum employment and stable prices, not political demands. During his press conference, Powell reiterated that the Fed is focused on controlling inflation and is still in the early stages of understanding the full impact of tariffs and other policy changes. He noted, “There’s quite a lot of data coming in before the next meeting. Will it be dispositive? … It is really hard to say.”
While financial markets had increasingly priced in a September rate cut, Powell’s comments offered little concrete guidance, leading investors to reduce the probability of such a move to less than 50%. He stressed that the Fed would continue to be data-dependent, closely monitoring indicators such as the upcoming July jobs report and new inflation data.
Economists like Andrew Hollenhorst, chief US economist at Citi, suggest policymakers will be watching for signs of damage to the job market, where the unemployment rate remains low at 4.1% but job creation has weakened. The risk, Hollenhorst warns, is that “you wait too long and the cracks you’re seeing in the labor market actually become more concerning.”
The Fed’s next significant gathering will be its annual retreat in Jackson Hole, Wyoming, in late August, where Powell typically delivers a major policy speech. All eyes will be on whether fresh data or evolving economic conditions sway the Fed toward a rate cut in September or if the “wait-and-see” approach will continue.
What are your thoughts on the Fed’s decision and the ongoing debate surrounding interest rates and tariffs? Do you anticipate a rate cut later this year, or will the Fed hold firm?