The Federal Reserve has defied Donald Trump’s calls to slash borrowing costs, keeping US interest rates on hold for the fifth meeting in a row.
The central bank said on Wednesday that it opted to keep rates at 4.25-4.5 per cent, citing a “solid” labour market and “somewhat elevated” inflation.
Two members of the rate-setting Federal Open Market Committee (FOMC) dissented, with governors Christopher Waller and Michelle Bowman backing a quarter-point cut. It marked the first time since 1993 that two governors dissented on a rate decision.
The FOMC also warned growth had “moderated” over the first half of the year, suggesting officials are edging towards backing cuts at future meetings.
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The schism on the FOMC comes amid rising tensions between the White House and rate-setters. The president has repeatedly attempted to strong-arm the Fed and its chairman, Jerome Powell, into cutting rates, claiming the strength of the world’s largest economy warrants them being at 1 per cent.
Mr Trump also made a highly unusual visit to the Fed’s headquarters last week, where he insisted rates should be lower and scolded Mr Powell for cost overruns related to a $2.5 billion renovation.
Bureau of Economic Analysis data published on Wednesday morning showed the US economy expanded by an annualised rate of 3 per cent in the second quarter, after shrinking during the first three months of the year.
But economists said there were signs the economy lost momentum in the first half of 2025, with consumers slowing their spending as they have grown concerned about tariffs and the strength of the labour market. There are also signs that high interest rates are weighing on the country’s housing market.
Joe Lavorgna, economic counsellor to US treasury secretary Scott Bessent, argued at an event in Washington on Wednesday that “if you look at the interest sensitive parts of the economy, they’re on the softer side”. He added that the central bank’s main interest rate had been above the so-called neutral level, where growth is neither boosted nor constrained, for more than three years. - Copyright The Financial Times Limited 2025
