US Federal Reserve resists pressure from Donald Trump to cut interest rates

Fresh from his visit to Scotland, the US President took aim at Fed Chair Jerome Powell as he promoted a spate of recent trade deals.

Donald Trump took aim at Federal Reserve chairman Jerome Powell on Wednesday as he promoted a spate of recent trade deals. Pictures: AFP/Getty Images

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Jerome Powell has defended the importance of independent central banks as a key safeguard against the manipulation of monetary policy for political objectives, as the US Federal Reserve resisted pressure from Donald Trump by holding rates for a fifth consecutive meeting.

The decision comes as new figures showed the US economy rebounded over the US spring and after talks with Beijing led by Treasury Secretary Scott Bessent failed to reach a deal to extend the trade war truce.

Fresh from his visit to Scotland, Mr Trump took aim at Federal Reserve chairman as he promoted a spate of recent trade deals including with the EU and Japan which will massively boost investment into the US economy.

Earlier, the US President announced a high tariff rate of 25 per cent on India despite acknowledging it was a “friend” and also said he was imposing an additional “penalty” on the country because it purchased the majority of its military equipment from Russia.

Pressed on the ongoing trade talks with Beijing, Mr Trump said “we are moving along with China. We are doing fine with China. We’re right in step. I think we are going to have a very fair deal with China.”

Amid the ongoing pressure campaign against him, Mr Powell provided a strong defence of the need for an independent central bank in his press conference. He said that it was an “institutional arrangement that has served the public well.”

“And as long as it serves the public well it should continue and be respected,” he said. “What it gives us and other central banks, what it gives you, is the ability to make these very challenging decisions in ways that are focused on the data and the evolving outlook.”

He said that governments “all over the advanced economy world have chosen to put a little bit of distance between direct political control of those decisions and the decision makers,” he said. “If you were not to have that, there would be a great temptation, of course, to use interest rates to affect elections.”

He also dodged a question on whether the administration was using the renovations of the Federal Reserve building - which Mr Trump inspected last week - as part of its pressure campaign against him to lower rates.

“This project was hatched and conceived almost a decade ago now and we went through a very long process of clearing it through historic preservation at the National Capital Planning Commission,” he said. “I was quite pleased to have the President say multiple times that what he really wanted to see was us getting this construction completed as soon as possible.”

New figures on Wednesday revealed that America’s economy grew at an annual rate of 3 per cent in the three months to June, with the result partly driven by a decrease in imports as a result of the US President’s tariffs and a lift in consumer spending.

Earlier in the day, Mr Trump seized on the GDP results to demand a rate cut from Mr Powell whom he has dubbed “Too Late” for his wait and see approach to interest rates.

Taking to his Truth Social platform, Mr Trump posted “2Q GDP JUST OUT: 3%, WAY BETTER THAN EXPECTED! “Too Late” MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!”

A statement issued by the Federal Open Market Committee at 2pm local time said a decision was taken to “maintain the target range for the federal funds rate at 4-1/4 to 4-1/2 per cent.” It noted that swings in net exports were affecting incoming data, but that the unemployment rate remained low, labour market conditions remained solid and “inflation remains somewhat elevated.”

Chinese and US officials have held fresh rounds of talks looking to extend a fragile trade truce in the face of President Donald Trump’s global tariff war. Picture: AFP

However, of the 12 voting members, two Federal Reserve officials dissented with Michelle Bowman and Christopher Waller making clear they wanted to lower the target range for the federal funds rate by one quarter of a percentage point – suggesting a weakening consensus.

Mr Powell said the different views made for a “good meeting” and argued that “what you want from everybody and also from a dissenter is a clear explanation of what you’re thinking is.”

“The majority of the committee was of the view that inflation is a bit above target,” he said.

Speaking shortly before the Federal Reserve’s decision, Mr Trump said America should have the lowest interest rates in the world. He warned the higher rates were hurting everyday Americans, preventing them from getting home loans or refinancing.

“It’s all because of the Fed. He (Mr Powell) has done a bad job,” the US President said.

Mr Trump made clear he was not expecting a rate cut, but also stressed that the better than expected GDP figures were not a reason to keep interest rates on hold.

“What you do is you lower them, and then let’s see if there’s inflation. Right now there’s no inflation. Everybody thought there would be. All we have is billions of dollars of cash pouring into our country from other countries that took advantage of us for many, many years,” he said.

The second quarter results released by the Bureau of Economic Analysis represented a major improvement on the first three months of the year in which the US economy contracted by 0.5 per cent.

The economic performance beat expectations for GDP to lift by about 2.5 per cent, although growth in the first half of 2025 is running at an annual rate of about 1.1 or 1.2 per cent – about half the rate over the first half of 2024.

Mr Powell said the economy was “in a solid position” but that inflation had been “running somewhat above our 2 per cent long run objective.”

“We believe that the current stance of monetary policy leaves us well positioned to respond in a timely way to potential economic developments,” he said.

Mr Powell said that recent economic indicators suggested that “growth in economic activity has moderated. GDP rose at a 1.2 per cent pace in the first half of this year – down from 2.5 per cent last year.”

“The moderation in growth largely reflects a slowdown in consumer spending. In contrast, business investment in equipment and intangibles picked up from last year’s pace. Activity in the housing sector remains weak,” he said. “Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 per cent longer run goal.”

He said that higher tariffs had begun to show through more clearly in the prices of “some goods” but noted that “their overall effects on economic activity and inflation remain to be seen.”

‘A reasonable base case is that the effects on inflation should be short lived, a reflecting a one time shift in the price level. But it is also possible that the inflationary effects could instead be more persistent and that is a risk to be assessed and managed.”

However, Mr Powell said that “consumers will pay some of this. Businesses will pay some of this. Retails will pay some of this.”