Trump’s Pressure Fails: Fed Rate Cut Off the Table for Now

The Federal Reserve has chosen to maintain the interest rates at 4.25% and 4.50%% whilst there have been increased demands be former President Donald Trump to make swift reductions. This marks the fifth meeting in a row where the central bank has chosen stability over stimulus. We’ve been watching this closely because markets were hoping for signs of relief as early as September, but Chair Jerome Powell made it clear, it’s still too soon.

Powell’s message was straightforward: inflation is still running hotter than the Fed’s 2% goal, and new trade policies could push prices even higher. In simple terms, we’re not out of the woods yet. This decision might frustrate Trump, who has labeled Powell “Too Late,” but the Fed insists it must act on hard data, not political noise. With fresh inflation and jobs reports due in weeks, the next move could reshape the economic outlook heading into year-end.

Trump’s Push for Rate Cuts

Trump has been reporting the reduction in interest rates sharply and immediately. He nicknamed Powell “Too Late” and said rates should be slashed to ease mortgage costs and reduce government borrowing expenses. His stance is clear: cheaper credit will spark growth. But the Fed has resisted. Officials say policy must remain independent of political pressure.

Federal Reserve’s Decision & Rationale

There was a 9 2 Federal Open Market Committee vote that left rates unchanged. Governors Michelle Bowman and Christopher Waller, both Trump appointees, dissented, arguing for a 0.25% cut. This was the first dual dissent in more than 30 years. Powell emphasized the Fed is data‑driven. He said inflation is still above the 2% goal, and trade policies could worsen it further. The Fed described its policy as “modestly restrictive,” meaning it will wait for clearer data before loosening.

Current Economic Conditions

Economic growth is uneven. Real GDP rose 3% in Q2, but much of that reflected lower imports, and overall, half‑year growth averaged just 1.1%. Hiring has been positive, about 104,000 private jobs added in July, and wages rose faster than inflation at 4.4%, boosting household incomes. The services sector is strong: S&P‑flash services PMI hit 55.2, while manufacturing PMI slipped to 49.5, signaling contraction. Inflation remains elevated, core PCE expected at 2.7% y/y, headline around 2.5%. Unemployment sits near 4%, and the labor market, though solid, shows signs of slowing growth in the labor force.

Market Reaction

Investors had expected a September cut. After Powell’s press conference, that probability dropped sharply to below 50%. Treasury yields climbed. The S&P 500 and Dow Jones dipped slightly. ME’s FedWatch tool now shows September cut odds slipping to about 58–60%, with the probability dropping quickly.

Internal Dissent, Rare Split

The 9‑2 vote underscored disagreement inside the Fed. Bowman and Waller supported an immediate rate cut, pointing to soft inflation trends and signs of weakness in the job market. Others on the board backed Powell’s cautious stance. The unusual split reflects the tension between inflation control and fears of slowing growth.

What’s Next? Outlook for Late 2025

Powell noted that the Fed plans to review upcoming economic data closely before making any decision at the September 16-17 meeting. Key updates include June inflation (PCE release on Thursday) and July payroll data on Friday. If inflation eases and hiring weakens, markets expect a cut in December. Economists remain divided: some expect cuts later in the year if labor softens; others warn tariffs may keep inflation stubborn.

Political Implications

Trump’s push is political: ready to claim Fed action as an economic virtue before elections. The Fed, however, resists being swayed. Powell has emphasized timing cuts so as not to re‑ignite inflation or hurt employment. Some Democrats praise the Fed’s independence, while others fear higher borrowing costs may dampen household finances amid the election season.

Conclusion

The Fed has effectively put a Fed rate cut off the table, at least for now. We see a central bank that prioritizes inflation control over political pressure. With inflation still above target and uncertainty over tariff-driven price rises, policymakers prefer patience over action. It is these upcoming weeks of data that are going to be decisive. If inflation cools and job growth slows, rate relief may come in December, not September. For now, we hold tight.

Disclaimer:

This content is for informational purposes only and not financial advice. Always conduct your research.