The Fed Keeps Interest Rates Steady, Despite Pressure From Trump

Federal Reserve Chair Jerome Powell held interest rates steady on Wednesday, defying intense pressure from President Donald Trump to cut rates and stimulate a tough economy ahead of the 2026 midterms.

“Available indicators suggest that economic activity has been expanding at a solid pace,” the Fed wrote in a statement announcing its decision Wednesday.

The Fed did, however, cite low jobs gains and high inflation, as well as an “elevated” uncertainty about the future of the economy.

The decision, though widely expected, comes at a politically fraught moment for the central bank’s independence, just weeks after Powell announced the Justice Department threatened him with criminal charges.

“This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions or whether instead monetary policy will be set by political pressure or intimidation,” Powell said in an announcement of the investigation earlier this month.

Two Fed Board governors, Christopher Waller and Stephen Miran, voted against maintaining current rates. Both “preferred” to lower interest rates at the meeting this week — by a quarter of a percentage point, according to the Fed statement released Wednesday.

Waller is on Trump’s short list for the next Fed chair.

The federal funds rate, which determines the interest rate charged for overnight loans between banks, sits between 3.5 and 3.75% following three consecutive rate cuts in 2025. Trump has openly pressured Powell to further lower interest rates, as the president looks to make home loans more affordable and boost a slowing economy.

“Mortgage Rates just hit a Three Year Low despite Jerome ‘Too Late’ Powell, and his never ending quest to keep Interest Rates high (against ‘TRUMP!’). It just shows that he has been wrong all along, because the Market is overtaking his obstinance,” Trump wrote in a TruthSocial post on Thursday.

Trump has claimed he knew nothing about the grand jury subpoenas the DOJ served to the Fed, which concern Powell’s Senate testimony regarding a multibillion-dollar renovation of the Fed’s historic office buildings. Republican senators have condemned the investigation and called for the central bank to remain independent from outside political pressure.

Economists told NOTUS it’s vital the Fed does not slash rates by Trump’s proposed margins anytime soon, or risk high inflation.

“As much as the president wants would be disastrous,” said Jai Kedia, a research fellow at the Cato Institute. “It actually makes the Fed’s job harder to lower rates, because if they were to do that significantly, markets would not believe that it was happening for economic reasons. They would think it’s happening for political reasons, and that would lead to disastrous consequences.”

Economists have struggled to get a clear picture of the economy. Inflation — spurred by supply chain constraints and general uncertainty created by tariffs — has been hard to capture in fluctuating data, Kedia said. The weekslong government shutdown last year also precluded important data collection on inflation.

“Without any clear indication from inflation data, it probably is wise to hold rates steady,” Kedia added.

That may not be the case for long. Trump has been teasing his pick to replace Powell, whose term as chair ends in May, and suggested in his Davos speech last week that he has already made his decision.

“I’ll be announcing a new Fed chairman in the not-too-distant future. I think he’ll do a very good job,” Trump said.

The contenders include Kevin Warsh, a previous Fed governor and Hoover Institution fellow; current Fed Governor Waller; BlackRock executive Rick Rieder; and National Economic Council Director Kevin Hassett, whom Trump has said he wants to keep in his current position.

Trump expressed concern that any new Fed chair would resist his calls for low interest rates.

“Everyone could do, I think, a fantastic job,” Trump said in the speech in Davos. “Problem is, they change once they get the job, they do. You know, they’re saying everything I want to hear, and then they get the job, they’re locked in for six years. They get the job, and all of a sudden, ‘Let’s raise rates a little bit.’ I call them, ‘Sir, we’d rather not talk about this.’ It’s amazing how people change once they have the job.”