Powell ignores Trump's demands and keeps rates unchanged for the fifth time

BarcelonaNor the demands to dismiss him from office nor the accusations this week from spending too much money on the renovation of the headquarters Nor have the latest outbursts through Truth Social been enough to subdue Jerome Powell. The chairman of the Federal Reserve and Donald Trump's main public enemy. has ignored it again In response to pressure from the president, and in a decision that underscores the Fed's institutional independence, it announced this Wednesday that it is keeping interest rates at around 4.5%.

The Federal Open Market Committee (FOMC) of the United States Federal Reserve has decided to keep interest rates within the target range of 4.35% to 4.5% for the fifth consecutive time, after doing so in January, March, May, and June. Previously, the US central bank had opted to lower rates at the last three meetings of 2024, marking the first cut since March 2020. "To achieve its objectives, the committee has decided to maintain the target range for the federal funds rate between 4.35% and 4.5%," it announced. The organization, chaired by Powell, explains that, while fluctuations in net exports continue to affect the data, recent indicators suggest that economic growth moderated in the first quarter. In the same statement, it also notes that the unemployment rate remained low and inflation "somewhat elevated."

This is precisely the point of contention between Powell and Trump. The US Bureau of Economic Analysis (BEA) published its estimates for second-quarter gross domestic product (GDP, the indicator that measures a country's economic activity) growth this Wednesday. During this period, the US economy grew 3% compared to the same period last year, and 0.7% compared to the first quarter. Trump used this data early on to hit home: "Second quarter GDP just came out: 3%, much better than expected. Too late. Now he must lower rates," Trump posted on Truth Social.

Tariffs as a backdrop

The US president also exclaimed: "Enough inflation! Let people buy and refinance their homes." The truth is that this decision by the Fed, which comes days after the European Central Bank (ECB) also decided to maintain interest rates, is determined by both the performance of the economy and inflation. Trump asked Powell to lower rates because, according to economic theory, it would boost consumption and economic growth, but according to the same theory, this could maintain or increase inflation, which would explain Powell's restraint. The main element looming over this decision is the trade war launched a few months ago by Donald Trump, who recently witnessed one of the most significant announcements: the trade agreement that he and the President of the European Commission, Ursula von der Leyen, formalized on Sunday in Scotland.

The economic impact of the tariffs is yet to be determined, especially in the United States, which is still negotiating with many of its trading partners—especially China, with which it held a two-day meeting in Sweden that ended without a major agreement. Initially, the imposition of tariffs on foreign products will affect the pocketbooks of U.S. businesses and consumers because the products they import will come with a surcharge, which could lead to a squeeze on margins, which would cool the economy because they would end up putting less money into the U.S. economy, and also lead to higher prices.

"The Committee seeks to achieve maximum employment and 2% inflation over the long term. Uncertainty about the economic outlook remains elevated. The Committee remains vigilant about the risks to both parts of its dual mandate," the statement said. The decision to maintain rates received majority support in the committee, with Chairman Jerome Powell, Vice Chairman Michael S. Barr, and seven other members voting in favor, while only Michelle W. Bowman and Christopher J. Waller opposed them, opting for a 0.25 percentage point rate cut.