Federal Reserve officials held interest rates steady after emerging from their latest two-day policy meeting, the first to take place during the second Trump administration. That decision comes despite President Donald Trump’s pressure on policymakers to drive rates lower.
One clue to the central bank’s rationale: Its press release announcing the decision — which analysts typically parse for signs of the path ahead — removed part of a line in its previous one saying inflation “has made progress toward” a goal of 2%, noting Wednesday only that it “remains somewhat elevated.”
Consumer prices averaged 2.9% higher in December than the same period a year earlier — an annual rate that has hovered for months above the Fed’s 2% target.
All three major stock indices dipped on the heels of the decision, with the Fed striking a more cautious tone on inflation. Fed Chairman Jerome Powell is set to make remarks at 2:30 p.m. ET Wednesday about the central bank’s current thinking on interest rates and the state of the economy.
In a wide-ranging videoconference address to the World Economic Forum in Davos, Switzerland, last week, Trump said he’d “demand that interest rates drop immediately” and added that “they should be dropping all over the world. Interest rates should follow us all over.”
The comments extended Trump’s habit of publicizing his views on monetary policy, which U.S. presidents have long avoided to maintain the Fed’s autonomy from politics.
Consumer spending has held steady in recent months, helping prop up economic growth.Yuki Iwamura / Bloomberg via Getty Images file
“I know interest rates much better than they do,” he said in follow-up comments after his Davos address. He also renewed his criticism of Powell, whom he appointed in 2017 and has promised not to try to remove before Powell’s term ends in May 2026.
The U.S. economy is in vastly different shape since Trump left office in January 2021, with the country still gripped by the Covid-19 pandemic and bitter disputes over lockdown measures to combat it.
After a pandemic-era run-up in prices that devastated many consumers’ finances, inflation has been curtailed dramatically. Unemployment edged down to 4.1% in December from 4.2% the month before after employers added over a quarter-million jobs, helping tamp down worries about a labor market that has remained sturdy even as it cools.
Consumer spending, meanwhile, has held steady despite households’ increasing focus on value. Gross domestic product — driven largely by the consumption of goods and services — has grown by at least 3% for two straight quarters, federal researchers said in December.
Analysts see these and other metrics as signs that the economy is still humming along despite the inflation fight’s difficult “last mile,” which would reduce the need for a fresh boost from the Fed just yet. The central bank has penciled in two rate cuts this year after lowering them for three consecutive meetings, whittling its benchmark rate from a 20-year high range of 5.25%-5.5% to the current 4.25%-4.5%.
“The progress toward 2% inflation has stalled out, and the Fed knows it,” Bankrate Chief Financial Analyst Greg McBride said in a statement Wednesday afternoon. “They gave no indication in their post-meeting statement that a resumption of rate cuts is likely at the next meeting in March. It will take a run of good inflation data to get us there, whenever that may be.”
Economists say the delicate dance of keeping borrowing costs elevated enough to wrestle price growth lower without pushing the economy into a recession has become more complicated. That’s largely due to Trump’s economic agenda — particularly tariffs, with his first policy move on that front expected Saturday.
“It’s clear that the central bank’s decisions this year will be shaped by the Trump administration’s policies on trade and immigration,” Joe Brusuelas, chief economist at the financial firm RSM said in a note Tuesday ahead of the rate decision. “These policies could lead to higher inflation, or, just as important, raise inflation expectations, which would put the Fed’s long-held 2% inflation target at risk.”