The US Federal Reserve, Open Market Committee, has decided to hold rates steady in a move that is likely to frustrate President Donald Trump, who has been rather vocal in advocating for lower interest rates.
Markets have anticipated this decision with current expectations indicating rate cuts are still on the calendar to happen later this year.
The decision to keep rates at the current target rate of 4 1/4 to 4 1/2 percent was not unanimous, as two voting members expressed their opinion that it was time to lower rates. FOMC members Michelle W. Bowman and Christopher J. Waller preferred to reduce the target range for the federal funds rate by 1/4 percentage point at this meeting. Absent and not voting was Adriana D. Kugler.
The statement issued by the Committee noted that while unemployment remains low and labor markets are solid, inflation continues to be somewhat elevated.
The Fed has a mandate of achieving a rate of inflation of 2% and full employment. The Fed said that “uncertainty about the economic outlook remains elevated.”
Part of this uncertainty stems from the ongoing trade negotiations initiated by the Trump Administration. While several deals have been announced, China, India, and others are still in limbo. Recently, a deal with the EU was revealed, but the agreement is in principle, with actual details still being hammered out. At the same time, additional sanctions on Russia can add a twist to the economic mix.
The FOMC stated that it would be prepared to adjust the stance of monetary policy as events demand.
The Committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures, and inflation expectations, and financial and international developments.
President Trump has regularly expressed his frustration with Fed Chair Jerome Powell, demanding he cut rates, as he believes this will benefit the economy. The Fed’s institutional independence from the Executive branch has vexed the President, who has wondered if he should fire Chairman Powell, an act that is probably not allowable under current law. At the same time, the race to replace Powell has already commenced as his term expires next May.