Fed holds interest rates steady despite Trump’s renewed calls to lower them | US economy

The US Federal Reserve unanimously kept interest rates steady on Wednesday; This shows that the pressure on the central bank to combat rising inflation is increasing.

The Fed’s federal open market committee voted 9-3 to maintain rates, while three dissenting members said they favored raising the rate by a quarter point. It was the first time in a decade that three board members disagreed on a policy decision.

Cooler inflation data released earlier this month may have tempered expectations for an imminent rate hike, but new Fed chairman Kevin Warsh said at a news conference that the committee was less interested in “any data” and more focused on overall trends. The weak peace agreement between the USA and Iran also caused energy prices to rise again.

Warsh reiterated that he wants policy decisions to come from “a good family fight” and said Wednesday that he “made a decision” at his second Fed meeting as chairman.

“Most of our discussion was on the big questions that are important to the conduct of monetary policy,” Warsh said. “We didn’t hide from them. We didn’t fear them. There was a lot more interaction between my colleagues, it was a real family feud. My view, which you’ve heard for a long time, is that there is a better way to do policy right.”

Just two weeks ago, one of the dissenting bank presidents, Lorie Logan of Dallas, floated the idea of ​​”modestly higher interest rates” in public statements, arguing that they would better balance the “outlooks and risks” for the Fed’s dual mandate of maximum employment and price stability.

“Inflation has been too high for too long and it doesn’t look like it will go back to 2 percent,” he said. “Inflation risks are also on the upside. Meanwhile, the labor market is also solid. Without any policy restrictions, these conditions are likely to persist until an unexpected shock occurs.”

Logan joins Beth Hammack in Cleveland and Neel Kashkari in Minneapolis as the dissenting minority. Three bank presidents had formed a bloc before; most recently in April, they all opposed the committee’s decision to include a forward-looking statement, or “bias mitigation,” in the Fed’s news release.

Although Warsh was committed to achieving price stability at Wednesday’s press conference, it was unclear exactly what tools he plans to use to achieve that goal. While he said interest rates could be used “as part of that solution,” he added: “I wouldn’t say it’s the only thing.”

Warsh signaled the beginning of a new era at the central bank, emphasizing wariness of forward guidance. At its first meeting in June, it announced five new task forces comprised of economics professors, business leaders and former central bank governors aimed at rethinking how the Fed approaches communications, data, balance sheet policy, the inflation framework and the impact of artificial intelligence on policy decisions.

The US-Israeli war with Iran, which has been ongoing since late February, has caused energy prices to rise for American households and businesses.

The Fed’s main tool in combating high prices has traditionally been to raise interest rates; This raises borrowing costs and actually cools the economy. But Trump has persistently and aggressively called for interest rate cuts since the beginning of his presidency, going so far as to verbally attack former Fed chairman Jerome Powell, who still sits on the Fed board, and target him with a Justice Department investigation for his failure to deliver.

Fed governors periodically release forward-looking forecasts showing when they think further interest rate changes will occur. Last month, half of all Fed members predicted at least one rate hike this year, in a U-turn from a few months ago when a majority of Fed members called for at least one rate cut in the same period.

Wednesday’s decision marked the fifth time interest rates have been left unchanged since December despite Donald Trump’s calls for a rate cut.

Trump renewed his push for lower interest rates on Monday, adding that the United States “should have the lowest interest rates in the world.”

Trump cleared Warsh of any blame, calling him “fantastic” and implying that Warsh would want to cut interest rates despite the views of board members, which Trump described as “too political.”