Federal Reserve maintains rates and expects only two cuts this year despite pressure from Trump

Not two percentage points, as Donald Trump demanded; not one, not half a percentage point, not a quarter of a percentage point. As expected, the U.S. Federal Reserve decided Wednesday to maintain interest rates at 4.25%-4.5% despite constant pressure from the Republican president, who shows little respect for the central bank’s independence. In addition, Fed officials have updated their projections for the U.S. economy, predicting lower growth, higher inflation, and only a 0.5 percentage point rate cut through the end of the year, possibly in two 0.25% point cuts, although this was not specified.

On Wednesday, while the Fed meeting was ongoing, Trump lashed out at its chairman, Jerome Powell. “We have a stupid person, frankly, at the Fed. He probably won’t cut today. Europe had 10 cuts and we had none,” Trump said on the White House lawn. “I guess he’s a political guy, I don’t know. He’s a political guy who’s not a smart person. But he’s costing the country a fortune. So what I’m going to do, he gets out in about nine months, he gets, fortunately, terminated.”

“Maybe I should go to the Fed. Am I allowed to appoint myself? I’d do a much better job than these people. Anyway, we should be two points lower. It would be nice to be two and a half points lower,” Trump added, once again echoing the late Venezuelan populist Hugo Chávez, who was also tempted to interfere in central bank decisions, causing a meltdown in currency markets.

Powell is scheduled to give a press conference later Wednesday to explain the decisions of the Federal Open Market Committee (FOMC), the central bank’s monetary policy-setting body. Powell has shied away from Trump’s provocations, but has made it clear that he will not bow to his pressure.

The Fed’s statement insists that future decisions will depend on data developments. Investors believe interest rates will remain at their current levels at the July 30 meeting, while they consider a rate cut in September more likely.

As at the last meeting of each quarter, the Fed publishes its Summary of Economic Projections, in which members provide their forecasts for gross domestic product growth, the unemployment rate, inflation, and official interest rates at the end of this year and beyond. In March, the last time they published their forecasts, before Trump’s misnamed Liberation Day, Fed members favored two 0.25-point rate cuts through the end of the year, to a level of 3.75%-4.00%.

The new roadmap reflects the challenges facing the central bank, whose dual mandate is to ensure price stability and full employment. Trump’s economic and trade policies, especially his ever-changing tariffs, make achieving both difficult and, above all, add uncertainty, as it is not even clear what the outcome of his measures will be.

Fed members forecast lower growth, higher unemployment, and higher inflation than three months ago. In this roadmap, they also establish the interest rate they consider appropriate. This is, obviously, a qualified forecast, since those who do so are the ones who will make the decision to set the price of money. This, however, is not binding on them, and their forecasts often fail to materialize as underlying economic conditions change.

The Federal Reserve’s thesis is that monetary policy is at a point where it can afford to wait and see: wait for the economic measures to become clearer and see what effect they have on the economy. So far, Powell has managed to steer the U.S. economy toward a soft landing: reducing inflation to close to the 2% price stability target without causing massive job losses or a full-blown recession.

Tariffs are a shock to that landing. They have increased consumer inflation expectations and, at the same time, have weighed on the economy, not only due to their direct effect but also due to the uncertainty that makes spending and investment decisions difficult for consumers and businesses. The conflict between Israel and Iran and the risk of escalation further complicate the outlook as it has made oil more expensive, and this will be reflected at the pumps and in the consumer price index.

Trump, meanwhile, disrespects Powell, calling him an “imbecile” and “stupid” and dubbing him “too-late Powell.” Accustomed as he is to flouting the law, the Republican wants the Fed chairman to ignore his legal mandate and lower interest rates to make it cheaper to finance public debt, which soared during Trump’s first term and will continue to grow rapidly during his second.

In reality, a cut in short-term rates doesn’t guarantee a transfer to long-term Treasury rates, which have risen due to the distrust generated by Trump, not Powell’s monetary policy. If investors lose faith that the central bank will fight to keep prices in check, rate cuts could backfire.

Trump complains that he has too many short-term debt maturities and says he hopes to refinance them for a few months until Powell leaves and he appoints another Fed chairman. Among the potential candidates is Treasury Secretary Scott Bessent.

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