Federal Reserve keeps rates on hold despite Trump pressure
Christopher Rugaber
The Federal Reserve hit the pause button on interest rate cuts on Wednesday, leaving the interest rate unchanged at about 3.6 percent after cutting it three times last year.
In its statement, the central bank stated that there were signs that the employment market was stabilizing, but also stated that growth was “robust”, an increase compared to last month’s “modest”.
With the economy growing at a healthy pace and no signs of worsening hiring, Fed officials likely see little reason to rush into further rate cuts. While most policymakers expect to cut borrowing costs further this year, many want to see evidence that stubbornly rising inflation is moving closer to the central bank’s 2 percent target. Inflation, by the Fed’s preferred measure, was 2.8 percent in November, slightly higher than a year ago.
While Governors Stephen Miran and Christopher Waller favored another quarter-point reduction, two officials opposed the decision. President Donald Trump appointed Miran in September; Waller is being considered by the White House to replace Chairman Jerome Powell, whose term ends in May.
Powell’s press conference will begin at 6:30 a.m., where every word will be scrutinized by markets.
The Fed’s decision to approve will likely increase criticism from Trump, who has been attacking Powell for months for not sharply lowering short-term interest rates. When the Fed lowers interest rates, it tends to lower borrowing costs such as mortgages, car loans, and business borrowing; however, these rates are also affected by market forces.
The move comes in the shadow of unprecedented pressure from the Trump White House. Powell said on Jan. 11 that the Fed had received a subpoena from the Justice Department as part of a criminal investigation into congressional testimony about a $2.5 billion building renovation. In an unusually blunt video statement, Powell said the subpoenas were an excuse to punish the Fed for not lowering interest rates faster.
And last week, the Supreme Court took up Trump’s attempt last year to oust Fed Governor Lisa Cook over mortgage fraud allegations, which he rejected. In the Fed’s 112-year history, no president has ever removed a governor. At an oral argument, the justices seemed inclined to let him keep his job until the case was resolved.
At the same time, Trump has suggested he is close to appointing a new Fed Chairman to replace Powell when his term ends in May. The announcement could come as early as this week, although it has been delayed before.
Economists say the president’s efforts to pressure the Fed may have backfired as Senate Republicans voiced their support for Powell and threatened to obstruct Trump’s new chairman.
More to come
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