Fed Holds Rates at 4.5% Amid Trump Pressure and Inflation Concerns

The Federal Reserve has held its benchmark interest rate steady at 4.5 percent, despite public pressure from President Donald Trump, who has repeatedly called for a rate cut to boost economic activity. In a move that highlighted internal divisions, two members of the Federal Open Market Committee—Christopher Waller and Michelle Bowman—voted in favor of a 0.25 percentage point cut, marking the first time in over three decades that two Board of Governors members have formally dissented [1]. Fed Chair Jerome Powell underscored that inflation remains a key priority, with tariffs having already pushed up the prices of certain goods [2].

In his statement, Powell noted that the year-over-year core PCE inflation rate in June is likely to be 2.7%, a figure that, while lower than the levels seen in 2022, still indicates elevated inflation. He acknowledged that while the inflationary effects of tariffs may be transitory, they could also persist, underscoring the uncertainty surrounding their long-term impact [3]. Powell emphasized that the Fed is committed to making data-driven decisions and has not yet determined its stance for the upcoming September meeting [4].

The decision to maintain the status quo came as the U.S. economy posted a strong 3 percent annualized GDP growth in the second quarter, partly attributed to a decline in imports linked to Trump’s tariff policies. While this growth is a positive sign, the Fed has expressed caution about the inflationary risks that could arise from sustained tariff-driven price increases. Powell reiterated that although near-term inflation expectations have edged higher, longer-term expectations remain aligned with the central bank’s 2 percent target [5].

Services inflation has continued to decline, offering some relief to the Fed’s cautious stance. Should this trend persist, it could support the possibility of future rate cuts. However, the Fed remains wary that the full effects of tariffs on inflation are still unclear and could either fade or endure. As such, it is closely monitoring developments and preparing to adjust its strategy if needed [6].

Market analysts have interpreted the Fed’s decision as a sign of its commitment to maintaining independence amid political pressures. Isaac Stell of Wealth Club described the Fed’s approach as a choice to prioritize institutional autonomy over political influence, while Richard Carter of Quilter Cheviot noted that the central bank’s tone has become slightly more dovish, hinting at a potential easing in policy [7]. Financial markets have largely priced in the first rate cut for October, with reduced expectations for a September move [8].

As the economy continues to navigate the dual mandate of price stability and maximum employment, the coming months will be pivotal in determining whether the inflationary effects of tariffs are temporary or more entrenched. The Fed’s next steps will depend largely on incoming economic data, with policymakers appearing prepared to adapt as new information emerges.

Sources:

[1] https://www.telegraph.co.uk/business/2025/07/30/us-economy-surges-in-boost-for-trump/