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Despite President Trump’s Urging, Federal Reserve Puts Interest Rate Cuts On Hold

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Despite President Trump’s Urging, Federal Reserve Puts Interest Rate Cuts On Hold

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The United States Federal Reserve opted to pause its interest rate cuts last Wednesday, leaving the benchmark rate at 4.25% to 4.5%. This decision follows three consecutive rate reductions in late 2024. Fed officials signaled no imminent cuts, citing concerns over inflation and the economic uncertainty surrounding President Donald Trump’s policies.

Federal Reserve Chair Jerome Powell explained that inflation, while lower than its pandemic-era peak, remains above the central bank’s 2% target. He emphasized that the Fed will take a cautious approach, monitoring incoming data and assessing how Trump’s trade, immigration, and fiscal policies may impact inflation and growth.

Trump Demands Interest Rate Cuts at World Economic Forum

President Donald Trump has been vocal about his desire for lower interest rates. Speaking at the World Economic Forum last week, he stated that the Fed should immediately cut rates. He argued that his economic policies will help bring inflation down. Specifically, the President outlined plans to boost energy production, reduce regulations, and impose tariffs on foreign imports. According to him, these measures will stabilize inflation and warrant lower borrowing costs.

Despite President Trump’s missives, Powell reiterated the Fed’s independence and stated that, “We focus on using our tools to achieve our goals, keeping our heads down and doing our work.” The US central bank’s reluctance to cut rates suggests a potential conflict between Trump’s aggressive economic agenda and the central bank’s more measured approach.

Did Inflation and Trump’s Plans Influence The Fed’s Decision to Halt Interest Rate Cuts?

Inflation has slowed from its pandemic highs but remains sticky. Monthly cost increases have been moderate, yet annual inflation remains at 2.8%. Some economists predict that tariffs and an immigration crackdown could reignite inflationary pressures, complicating future Fed decisions.

Trump’s policies introduce an unusual level of economic uncertainty. His proposed tariffs on imports from Canada, Mexico, and China could raise consumer prices. At the same time, mass deportations may shrink the labor supply, potentially driving up wages and adding to inflationary pressures. The Fed has to balance these factors when considering future rate cuts.

Stock Market Reaction to the Fed’s Decision

Markets reacted negatively to the Fed’s decision, with all three major U.S. stock indexes closing lower on Wednesday. The S&P 500 fell 0.5%, while the Dow Jones and Nasdaq each dropped by a similar margin. Investors had been hoping for more clarity on potential rate cuts, but Powell’s statements suggest rates may remain higher for longer.

Despite the initial selloff, some analysts believe that the Fed’s decision was the right move. “The economy remains strong, and inflation isn’t yet fully under control,” said Seema Shah, chief global strategist at Principal Asset Management. Others argue that delaying rate cuts could slow economic growth, especially if Trump’s tariffs disrupt trade.

Will The Fed Eventually Make Interest Rate Cuts?

The Federal Reserve remains open to future rate cuts but wants to see clear progress on inflation. Some economists believe the Fed could cut rates by mid-2025 if inflation continues to moderate. However, if Trump’s economic policies create inflationary pressures, the central bank may be forced to delay cuts—or even consider raising rates again.

Powell stressed that the Fed is not in a hurry to cut rates. “Right now, we feel like we are in a very good place. The policy is well-positioned, and the economy is in quite a good place,” he said. For now, investors and consumers should brace for a prolonged period of higher interest rates as the Fed waits for more economic clarity.

Should the Fed resume cutting interest rates as suggested by President Trump? Tell us what you think!

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  • Ron N says:

    We are on track to repeat the disaster of the 70s, where the Fed finally raised interest rates enough to combat inflation. Rates were ~20%!

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