Fed leaves interest rates unchanged despite Trump demands

The Federal Reserve voted to leave its short-term interest rate unchanged on Wednesday for the fifth straight meeting as expected, despite mounting pressure from President Donald Trump to lower them and dissent from two Fed governors appointed by Trump. 

The current short-term interest rate is 4.3%.

The choice to hold off on a rate cut will almost certainly result in further conflict between the Fed and White House, as Trump has repeatedly demanded that the central bank reduce borrowing costs as part of his effort to assert control over one of the few remaining independent federal agencies.

At a news conference, Powell said that tariffs are starting to push up the cost of goods, while the price of services — rents, insurance, and hotel rooms — has continued to cool.

He suggested it could take some time to determine whether the tariffs are having a one-time effect or are pushing up prices more persistently.

"We think we have a long way to go to really understand exactly how" the tariffs and prices will play out, Powell said.

Powell has said that tariffs could push up inflation, and that the central bank wants to see how the economy evolves in the coming months before reducing its short-term rate.

Fed rate cuts can sometimes — though not always — reduce other borrowing costs for things like mortgages, car loans, and credit cards.

What did Trump say about interest rates? 

What they're saying:

Trump says that because the U.S. economy is doing well, the Fed should cut rates. 

On Wednesday morning, before the Fed’s interest rate vote, Trump seized on a report showing the economy expanded at a 3% annual rate in the second quarter as evidence that growth is accelerating and again called on Powell to cut rates.

In a post on his Truth Social, he said Powell, whom he calls "Too Late," "MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!"

After the Fed’s decision to leave rates unchanged, Trump said, "I hear they’re going to do it in September," but Powell's remarks suggest that might not happen. 

The other side:

Fed officials — and nearly all economists — believe a solid economy means rates should be relatively high, to prevent overheating and a burst of inflation.

"I’d argue that our interest rates are higher because our economy’s doing fairly well, not in spite of it," Gennadiy Goldberg, head of U.S. rates strategy at TD Securities, told The Associated Press. 

How much has the economy grown this year? 

By the numbers:

The economy isn’t necessarily doing as well as the 3% figure suggests. It follows a negative reading in the first three months of the year, when the economy shrank at a 0.5% annual rate. Most economists are averaging the two figures to get a growth rate of about 1.25% for the first half of the year. 

Unemployment remains low at 4.1%. 

What's next:

Many economists and Wall Street investors have expected the Fed to cut its rate at its next meeting in September, but Powell's remarks suggest there may not be enough data before September to support a cut.

"We have made no decisions about September," Powell said.

Trump appointees at the Fed dissent

Christopher Waller and Michelle Bowman, two Fed governors appointed by Trump, voted against leaving the short-term rate unchanged. It’s the first time two governors at the Fed have dissented in over three decades.

Dig deeper:

The division could be a preview of what might happen after Powell steps down, if Trump appoints a replacement who pushes for the much lower interest rates the White House desires. Other Fed officials could push back if a future chair sought to cut rates by more than economic conditions would otherwise support.

Powell’s term ends in May 2026. 

Why does Trump want Powell to resign? 

The backstory:

Trump has been calling for Powell’s resignation since taking office for a second term in January, repeatedly criticizing Powell for not lowering interest rates and saying he’s done a "terrible job." More recently, Trump began accusing Powell of mismanaging the U.S. central bank’s $2.5 billion renovation project.

Trump has said he has the power to fire Powell if he chooses to, but later clarified that he doesn’t intend to do it. 

Powell has resisted and made clear that the Fed’s independence is "a matter of law." The Supreme Court recently signaled that Trump can’t fire Powell simply because the president disagrees with him on interest rates. But legally he could do so "for cause," such as misconduct or dereliction of duty.