Federal Reserve keeps interest rate steady despite Trump pressure

The Federal Reserve has kept its policy rate steady at 3.5% to 3.75%, despite coming under intense pressure from President Donald Trump to lower interest rates.

The central bank, which made three consecutive rate cuts last year, has been urged to slash rates further by Trump. Fed Chair Jerome Powell has also faced a sustained pressure campaign from the president.

However, the Fed was widely expected to hold rates at the current level at its latest meeting, exercising caution amid concerns about elevated inflation. Last week the latest Personal Consumption Expenditures price index, which reflects changes in the prices of goods and services purchased by consumers in the U.S., was 2.8%. While that core PCE number was anticipated, it is still higher than the Fed’s long-term 2% target.

"Available indicators suggest that economic activity has been expanding at a solid pace," said the Federal Reserve, in a statement. "Job gains have remained low, and the unemployment rate has shown some signs of stabilization. Inflation remains somewhat elevated."

"The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run," the central bank added, noting that uncertainty about the economic outlook "remains elevated."

Scott Helfstein, head of investment strategy at Global X, was not surprised by the Fed’s decision to hold rates at the current level. “This was a bit of freebee since the next rate cut is not priced until July,” he said, in a statement. “The Fed can wait and see, hopefully, gathering some more data since the prior decisions were made with reports delayed from the shutdown.”

By its next meeting, in March, the Fed should have a clearer sense of the outlook for its dual mandate of maximum employment and stable prices, according to Josh Jamner, senior investment strategy analyst at ClearBridge Investments. “The Fed pause officially began with the FOMC electing to keep rates steady and not make adjustments to their ongoing Reserve Management Purchases, as was widely expected,” he said, in a statement. “Two payroll and CPI prints will be released before the next meeting - both of which will have fewer residual distortions from the late 2025 government shutdown - meaning Powell won't want to pre-commit to any policy decision today as the committee should have a better handle on the outlook for both halves of the dual mandate at the next meeting.”

Of the 12 voting members of the Federal Open Market Committee, 10, including Powell, voted in favor of the monetary policy, with two members voting against the action, preferring to lower the target range for the rate by a quarter of a percentage point.

The lingering effects of potential distortions in economic data may have prompted the majority of voting Fed officials to pause and await more data, according to Luis Alvarado, global fixed income strategist at the Wells Fargo Investment Institute. 

Jeffrey Roach, chief economist for LPL Financial notes that, while two members dissented in favor of a cut, several members dissented at the last meeting, for various reasons. “Given the more likely FOMC view that dual risks of inflation and unemployment are mostly in balance, we should not expect any change in policy at the March meeting,” he added.

Speaking during a press conference Wednesday, Powell said that inflation performed "about as expected" and noted that some of the labor market data suggested evidence of stabilization. "We haven't made any decisions about future meetings but, you know, the economy is growing at a solid pace, the unemployment rate has been broadly stable, and inflation remains somewhat elevated," he added. 

The comments from the Fed and Powell seemed to emphatically declare that the U.S. economy has made a soft landing, according to Simeon Hyman, global investment strategist at ETF provider ProShares. “They noted that both the risk to employment had diminished, and the risk of rising inflation had diminished,” he said, in a statement. “If the soft landing has been achieved, then there is limited pressure to change the Fed Funds rate - particularly since today's Fed Funds rate is arguably neutral since it's about 100bps above inflation.” 

Earlier this month Powell said that he is under criminal investigation over testimony he gave to the Senate Banking Committee last year related to the renovation of historic Federal Reserve buildings. The Fed chair, whose term ends in May, has slammed the investigation as revenge over the central bank’s interest rate decisions.

During the press conference, Powell declined to discuss the investigation, and referred journalists to the statement he issued on Jan. 11.  

Trump has said that he will name Powell's replacement as Fed Chair soon. When asked about the possibility of the president appointing a new Fed chair before his term ends, Powell said: "I don't have anything for you on that."

The Fed chief, who has two FOMC meetings left in his role, was also asked what advice he has for his successor. "Stay out of elected politics, don't get pulled into elected politics, don't do it," he said. "If you want democratic legitimacy, you earn it by your interactions with our elected overseers, it's something you need to work hard at, and I have worked hard at it."