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The U.S. Federal Reserve has once again opted to hold interest rates steady, despite ongoing pressure from President Donald Trump to implement lower borrowing costs.
The widely anticipated decision maintains the Federal Reserve’s benchmark lending rate in a range of 4.25% to 4.5%, a level it has held since December.
In a notable divergence, two members of the board dissented, advocating for a rate cut, suggesting a potential broadening of support for easing monetary policy.
The vote occurred amidst ongoing debate fueled by new economic data concerning the potential impact of President Trump’s tariffs on the world’s largest economy.
Recent figures from the Commerce Department indicate that the U.S. economy expanded at an annualized rate of 3% during the April-June period, following a contraction in the first three months of the year.
However, the stronger-than-expected rebound was largely attributed to a significant decline in imports coinciding with the implementation of President Trump’s tariffs.
“Forget about the headline number,” Jim Thorne, chief market strategist for Wellington-Altus Private Wealth, stated on the BBC’s Opening Bell. “The underlying data is suggesting an economy that is losing momentum.”
The Federal Reserve typically lowers interest rates to stimulate a struggling economy and raises them to curb rapid price increases.
Federal Reserve policymakers have previously signaled their expectation to lower borrowing costs at some point this year, following similar moves by other central banks, including the Bank of England.
However, they have refrained from action longer than initially anticipated, expressing concerns about the potential economic effects of tariffs and other new policies, such as tax cuts.
Inflation, as measured by the pace of price increases, remains above the Fed’s 2% target, reaching 2.7% in June.
Wednesday’s decision marked the first time in over three decades that two Federal Reserve policymakers have voted against the majority.
Federal Reserve Chair Jerome Powell has argued that a cautious approach is warranted given the stable job market and the widespread expectation that tariffs will drive up prices.
However, delaying action carries risks, as tariffs can also impede growth by negatively impacting sales and investment.
In its announcement, the Federal Reserve acknowledged the growth figures, noting that growth had “moderated” during the first half of the year, despite trade-related fluctuations affecting the data.
During a press conference following the decision, Mr. Powell offered little indication as to whether a rate cut might occur in September, as financial markets increasingly anticipate, stating that he saw limited evidence that interest rates were “inappropriately” restraining the economy.
He also maintained that “a long way to go” remains before the full impact of the tariffs becomes clear.
Andrew Hollenhorst, chief U.S. economist at Citi, stated that policymakers would be closely monitoring for signs of damage to the job market, where the unemployment rate remains low at 4.1%, but job creation has weakened.
“The danger of waiting is, you wait too long and the cracks you’re seeing in the labor market actually become more concerning,” he said.
President Trump has dismissed concerns that his tariffs might drive up prices or negatively affect growth.
He has also criticized the Federal Reserve for moving too slowly to lower borrowing costs, focusing his argument on the potential for lower interest rates to save the government money on debt payments and stimulate the housing market.
In his push for rate cuts, President Trump has considered the possibility of firing Mr. Powell, although he has recently stated that he does not believe such a step – a major break with precedent – would be necessary.
“It may be a little too late as the expression goes, but I believe he’s going to do the right thing,” he told reporters last week after touring a Federal Reserve construction project that the White House has accused Mr. Powell of mismanaging.
On Wednesday, following the Commerce Department’s report on gross domestic product (GDP), he reiterated his call for lower rates, addressing Federal Reserve Chair Jerome Powell, whom he has nicknamed Mr. Too Late.
“WAY BETTER THAN EXPECTED!” he wrote on social media. “‘Too Late’ MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!”
Powell defended the Fed’s role in the housing market, noting that it does not set mortgage rates and pointed to other factors – including US government borrowing costs – shaping those rates.
Food prices rose by 4% in the year to July, according to the British Retail Consortium.
Richard Hemans says the island “must accelerate housing development and expand workforce capacity”.
The Retail Prices Index for June says leisure goods and services made the largest contribution.
Households are trading down or making simpler meals to save money on groceries, research shows.
The rate of inflation is 1.4% lower than the same time last year, latest figures show.
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