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Economic growth

Fed Resists Trump's Pressure, Leaves Interest Rates Unchanged Amid Stagflation Risks

Strategic Insights

— 1 min read

The US Federal Reserve has defied pressure from Donald Trump to cut interest rates, instead opting to leave rates at a range of 4.25-4.5% amidst growing concerns of stagflation. The decision came as the Fed cut its forecasts for economic growth and raised the inflation outlook, citing the impact of Trump's tariffs on trading partners. Fed chair Jay Powell warned of the "challenging scenario" in which economic weakness puts pressure on the Fed to cut rates while higher inflation pulls it in the opposite direction.

Key Takeaways:

  • The Fed left interest rates unchanged at a range of 4.25-4.5%, despite intense pressure from Trump to cut rates.
  • The Fed cut its forecasts for economic growth from 1.7% to 1.4% this year, citing the impact of Trump's tariffs.
  • The Fed's inflation outlook rose to 3% by the end of the year, from its previous forecast of 2.6%.
  • Powell warned of the potential for stagflation, with economic growth stagnating while inflation climbs.
  • The Fed still expects two quarter-point interest rate cuts this year, but slowed the pace from one each in 2026 and 2027.
  • Trump responded to the Fed's decision by taking a swipe at Fed chair Powell, calling him "too late" and suggesting he would do a better job as Fed chair.
  • The Fed's announcement came ahead of the Bank of England's rates decision, which is expected to leave rates on hold at 4.25%.

Statistics:

  • Interest rates: 4.25-4.5%
  • Economic growth forecast: 1.4% (down from 1.7% previously)
  • Inflation outlook: 3% by the end of the year (up from 2.6% previously)
  • Unemployment forecast: 4.5% by the end of 2025 (up from 4.2% currently)
  • Quarter-point interest rate cuts: 2 expected in 2023, 1 in 2026 and 2027
  • Trump's tariffs: 90-day pause ending soon, with expected impacts on inflation and economic growth

Sources:

  • "Fed Resists Trump's Pressure, Leaves Interest Rates Unchanged Amid Stagflation Risks". AP News.
  • "Federal Reserve Kept Interest Rates Steady Amid Trade War Pressures". Bloomberg.
  • "Donald Trump Slams Fed Chairman Jay Powell, says he would do a better job". CNBC.

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