Federal Reserve officials held interest rates steady after emerging Wednesday 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.
Fed Chairman Jerome Powell is set to make remarks at 2:30 p.m. ET 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.
“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 largely been tamed at 2.9% as of December, though it has hovered for months above the Fed’s 2% target rate. 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%.
But economists say the delicate dance of keeping borrowing costs elevated enough to tame price growth 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.
Fed policymakers are now “in a particularly tricky situation,” Elizabeth Renter, senior economist at NerdWallet, said in a statement Tuesday ahead of the latest interest rate decision. “Talk of policies that carry additional inflationary risk carry more weight now that the new administration is in place and beginning work.”
“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. “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.”
