Washington: The US Federal Reserve kept interest rates unchanged Wednesday, defying strong political pressure from President Donald Trump to slash borrowing costs — although divisions emerged among policymakers. The central bank’s call to hold interest rates at a range between 4.25 percent and 4.50 percent for a fifth consecutive meeting came with two dissents, marking the first time since 1993 that two Fed governors voted against a rate decision.
According to Bangladesh Sangbad Sangstha, this decision comes amid a flurry of data releases, including an estimate showing the world’s biggest economy returned to growth in the second quarter. However, the uptick was heavily influenced by a pullback in imports after businesses rushed to stockpile inventory in the first quarter ahead of Trump’s expected tariffs.
In announcing its decision Wednesday, the Fed cited a moderation in economic activity in the first half of the year and “solid” labor market conditions. It warned, however, that “uncertainty about the economic outlook remains elevated,” while inflation is somewhat heightened. Fed Chair Jerome Powell, when asked about US tariff deals and their effect on policymakers, stated that it remains a dynamic time for trade negotiations.
Despite the dissents by Fed governors Christopher Waller and Michelle Bowman, Powell maintained that it had been a productive meeting with thoughtful discussions. Both governors had earlier indicated openness to a rate cut, aligning with financial market expectations.
The dissents by Waller and Bowman, who favored a 25 basis points cut, were largely anticipated by financial markets. KPMG chief economist Diane Swonk noted that the Fed may become less unified as a potential rate cut approaches, and highlighted the challenges the central bank faces with potential shifts in employment and inflation.
The hyper-politicized environment has added pressure, with Trump repeatedly criticizing Powell and calling for lower rates. There is speculation that Trump may attempt to fire Powell or pressure him to resign. Nevertheless, Powell defended the independence of the central bank, stating that it has “served the public well.”
Powell appears to be slightly open to a possible September rate cut, acknowledging “downside risks” to the labor market. Official employment numbers for July, due for release on Friday, will be critical for the Fed’s decision-making process.
In the interim, companies are reporting weaker earnings and higher input costs due to “tariff-induced price pressures,” as noted by EY chief economist Gregory Daco. Economist Michael Pearce of Oxford Economics suggested that the Fed might adopt a “wait-and-see” approach for the next few months, given the current uncertainties and risks.