Federal Reserve Holds Interest Rates Steady
On Wednesday, 19th March 2025, the Federal Reserve announced they were holding their benchmark interest rates steady at 4.25% – 4.50%. The FOMC (Federal Open Market Committee) voted 8 – 1 in favour of keeping interest rates steady, with the dissenting voice belonging to Christopher J. Waller, who has been a member of the Board of Governors since December 18, 2020. It appears that members are concerned that inflation could remain stubbornly high whilst at the same time the economy could be slowing.
The Chairman of the Federal Reserve, Jerome Powell, confirmed that the significant policy changes attributed to President Trump were the main reason for the Fed’s high degree of uncertainty in regard to the U.S. economy. However, he went on to say that Federal Reserve officials will certainly wait for greater clarity on the impact of President Trump’s policies, before making any definite changes to borrowing costs.
Policymakers still suggest that further interest rate cuts will be necessary, with financial markets pricing in two further cuts, totalling 50 basis points in 2025 and a number of traders suggesting that there is a 62.1% of a further interest rate cut in June this year. Officials further marked down their outlook for inflation and growth and see the economy accelerating by just 1.7% this year, down from 2.1% as advised by their last projection in December 2024.
On the inflation front, Fed policymakers advise that inflation has remained elevated since Donald Trump was elevated to the Presidency and have raised their average estimate for core inflation (does not include food and energy prices) for 2.5% to 2.8% for year end 2025.
They also increased their estimate for the end of 2025 from 4.3% to 4.4%, whilst confirming that consumer confidence had gone south, resulting in softening spending figures.
It is expected that the Federal Reserve’s interest rate decision will incur the wrath of President Trump, who has repeatedly suggested that he should have a role in interest rate decisions. Indeed, he announced to the world in January 2025, at the World Economic Forum in Davos, “With oil prices going down, I’ll demand interest rates drop immediately, and likewise they should be dropping all over the world”.
Experts suggest that in the coming months, President Trump will certainly try and get a firm grip on the Federal Reserve as he will wish to exert his influence on interest rate decisions. Indeed since the inauguration of President Trump on January 20th 2025, the Federal Reserve has held two meetings where the decision was to hold interest rates steady, with the first meeting in January bringing an end to a run of three consecutive interest rate cuts.
In the run up to the presidential election on November 5th 2024, Trump announced he would not fire Jerome Powell, but with two interest rate holds two months into the Presidency we will have to wait and see. However, a President only has the power to appoint a Fed chairman, he cannot fire the chairman unless he has “cause” as per the Federal Reserve Act. In other words, President Trump cannot fire Chairman Powell over policy disagreements, but Trump being Trump he may find a way to get what he wants.
