Essential Info
On Wednesday, the Federal Reserve announced its decision to maintain the current interest rates, which has been set between 4.25% and 4.5% since December 2024. This choice comes even as President Donald Trump applied pressure for a rate cut. In a historic move, two members of the Federal Open Market Committee voted against this decision— the first time since the 1990s.
Key Takeaways
- The Federal Open Market Committee (FOMC) voted 9-2 to keep interest rates steady. Fed Governor Adriana Kugler did not participate in the vote.
- The FOMC reiterated that it aims for a 2% inflation target and acknowledged the “elevated uncertainty” surrounding the economic forecast.
- Fed governors Michelle Bowman and Christopher Waller proposed easing interest rates in prior weeks, but ultimately dissented against the current rate hold, marking a historic double dissent since 1993.
- Morgan Stanley hinted that Fed Chair Jerome Powell may advocate for patience regarding rate cuts, citing worries about Trump’s tariffs affecting the economy.
- Additionally, Bank of America suggested that Powell isn’t in rush to make cuts but warned that frequent disagreements among Fed officials may lead to a divided institution.
- Bowman indicated her readiness to support a rate decrease if inflation remains low, while Waller emphasized proactive measures before labor market tensions escalate.
When Could the Fed Cut Rates Next?
According to FactSet, most economists believe the Fed will refrain from cutting rates now, aiming for flexibility in case the economy worsens. Some market analysts are predicting a potential rate cut during the September meeting, estimating about a 66% chance of a quarter-point reduction, as informed by the CME’s FedWatch tool.
Trump’s Position on Interest Rates
Throughout his presidency, Trump has frequently criticized Powell due to his hesitance to lower rates. Recently, following a tense discussion with Powell, Trump described their conversation as “very good,” hoping it signified a forthcoming recommendation for lowered rates. Trump has been vocal about wanting rates dropped significantly, claiming numbers as low as 1% would be ideal, expressing confidence in Powell making the right decisions, albeit too late.
What Powell’s Been Saying
Earlier this month, Powell mentioned that an interest rate cut hasn’t been ruled out for as soon as July, and distanced himself from limiting future discussions. In June’s FOMC meeting, the majority of Fed staff projected rate cuts in 2025, indicating a long-term vision for the central bank’s financial policy.
Can Trump Replace Powell?
Despite contemplating a replacement for Powell behind closed doors, Trump asserted he wouldn’t fire him before his term, which runs until May 2026. Treasury Secretary Scott Bessent revealed that a “formal process” was set in motion to identify Powell’s successor. Speculation surrounds prominent candidates like Kevin Hassett, Kevin Warsh, David Malpass, and Bessent himself. Should Trump opt to dismiss Powell, it would potentially clash with a 1935 Supreme Court ruling limiting presidential power over heads of independent entities—though Trump has previously challenged such norms during his tenure.
