Trump vs. Fed? Central Bank defies political pressure, keeps rates unchanged

World news: In a unanimous decision, the US Federal Reserve announced on Wednesday that it would keep interest rates unchanged, marking its first significant monetary policy move under President Donald Trump’s second term. The decision, which leaves rates steady in the 4.25-4.50% range, comes amid ongoing concerns about inflation and economic stability.

The move is expected to fuel tensions between the White House and the central bank, as Trump has previously expressed his belief that the president should have some influence over Fed policy decisions.

Inflation and economic outlook remain key concerns

The Fed justified its stance by pointing to inflation, which remains "somewhat elevated," and an economic outlook that remains uncertain. The central bank notably removed language from its policy statement that previously indicated progress toward the 2% inflation target, signaling that more work is needed to stabilize prices.

At the same time, the Federal Reserve acknowledged that economic activity is expanding at a “solid pace.” While the unemployment rate remains low and labor market conditions are stable, officials are taking a cautious approach before making any further adjustments to interest rates.

A unanimous vote reflects a cautious strategy

All 12 voting members of the Federal Open Market Committee (FOMC) agreed to maintain the current rate range. This contrasts with last month’s meeting, where Cleveland Fed President Beth Hammack had dissented by advocating for a rate pause instead of a quarter-point cut.

However, Hammack was not part of this vote and will serve as an alternate voter for the remainder of the year. The decision underscores the Fed’s cautious approach as it monitors inflation trends and overall economic conditions before making further adjustments.

Market reaction and future rate expectations

Following the Fed’s announcement, short-term interest rate futures indicated that investors now expect the central bank to delay any potential rate cuts until June. Meanwhile, US bond yields remained largely unchanged, and stock markets saw a slight dip in response to the policy decision.

The Fed emphasized that its future actions would be driven by economic data. "In considering the extent and timing of additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks," the central bank stated. With inflation still running above the Fed’s target, officials remain optimistic that progress will continue throughout the year. However, for now, the central bank is holding rates steady while it awaits clearer economic signals.