U.S. Media: The Federal Reserve Will Ignore Trump and Keep Interest Rates Unchanged
From May 6 to 7 local time, the Federal Reserve will hold its third monetary policy meeting of the year. It is expected that Fed Chairman Powell will withstand pressure from U.S. President Trump and choose to keep current interest rates unchanged.
According to a report by the Associated Press on May 5, the Federal Reserve is highly likely to keep the benchmark interest rate at around 4.3%. Most of Powell and the other 18 officials on the Federal Open Market Committee have indicated that they want to observe the impact of Trump's tariffs on the economy before taking any action.
Last Friday, Trump posted on social media claiming there is no inflation and that the Federal Reserve should lower interest rates.
The inflation indicator favored by the Federal Reserve—the PCE index—rose 3.6% in the first quarter of this year. While it is well above the 2% target, inflation cooled in March, sending positive signals.
Economists believe that without the tariff policies, the current benchmark interest rate, aimed at curbing borrowing and controlling inflation, could have been lowered soon. However, due to Trump’s extensive tariff policies potentially driving up prices in the coming months, the Federal Reserve is currently unable to cut rates.
Economist Preston Mui stated that Trump’s pressure on Powell complicates the decision to lower rates, as recent rate cuts may be perceived as yielding to the White House.
“You can imagine that if there were no pressure from the Trump administration, the Federal Reserve might have cut rates earlier, as they could have easily indicated that it was a data-driven decision,” Mui said.
Reports indicate that in early April, Powell stated that the large-scale tariff measures introduced by the Trump administration could lead to rising inflation and slower economic growth, which is a tricky combination for the Federal Reserve. Typically, if economic growth slows, central banks reduce key interest rates to lower borrowing costs and stimulate the economy, while raising rates or maintaining high rates to curb consumption in the fight against inflation.
Some economists predict that the Federal Reserve might start cutting rates as early as September, and there may not be any cuts throughout the year. However, if tariffs severely impact the economy, leading to layoffs and rising unemployment, the Federal Reserve may act sooner. Wall Street investors seem to be betting on this scenario, anticipating the first rate cut could be in July.
