U.S. Federal Reserve has kept its benchmark interest rate steady at 4.25% to 4.50% for the fourth consecutive meeting.
This decision reflects a cautious stance amid ongoing uncertainty surrounding President Trump’s tariff policies and their potential impact on inflation and economic growth.
The Fed still anticipates two rate cuts later in 2025, but officials are split – some expect none or just one cut.
Inflation projections have been revised upward to 3.0% for 2025, while economic growth expectations have been trimmed to 1.4%.
U.S. President Donald Trump has been sharply critical of Federal Reserve Chair Jerome Powell, especially following the Fed’s decision on June 18, 2025, to keep interest rates steady.
He’s called Powell ‘a stupid person’, ‘destructive’, and ‘Too Late Powell’. accusing him of being politically motivated and slow to act on rate cuts.
And the Federal Reserve is supposed to act independently of political influence.
The Federal Reserve held its key interest rate steady at 4.25% – 4.50% on 7th May 2025, citing economic uncertainty and the potential impact of tariffs.
Fed Chair Jerome Powell emphasised that the central bank is in wait-and-see mode, monitoring inflation and employment risks.
The decision follows concerns that Trump’s trade policies could lead to stagflation, with rising prices and slowing growth.
While markets reacted positively, analysts remain divided on whether the Fed will cut rates later this year.
Powell stated that future adjustments will depend on evolving economic conditions and the balance of risks.
Trump’s take on this decision was reportedly to call Powell… a fool.
What is stagflation?
Stagflation is an economic condition where high inflation, stagnant economic growth, and high unemployment occur simultaneously.
It presents a challenge for policymakers because measures to reduce inflation can worsen unemployment, while efforts to boost growth may fuel inflation further.
President Donald Trump’s recent criticism of Federal Reserve Chair Jerome Powell has sent shockwaves through the financial markets, reigniting concerns about the central bank’s independence.
On Monday 21st April 2025, Trump took to social media to publicly call Powell a ‘major loser’ and demanded immediate interest rate cuts, warning of an economic slowdown if his demands were not met.
This public rebuke, coupled with Trump’s earlier threats to terminate Powell, has unsettled investors and triggered another sharp sell-off in U.S. stocks.
The Dow Jones Industrial Average plunged nearly 1,000 points, or 2.48%, closing at 38170. The S&P 500 and Nasdaq Composite also suffered significant losses, falling 2.36% and 2.55%.
Dow Jones one-year chart
Dow Jones one-year chart
Trump continues to create uncertainty
Analysts attribute this market turmoil to fears that Trump’s rhetoric could undermine the Federal Reserve’s ability to operate independently, a cornerstone of its credibility.
‘Magnificent Seven’ tech companies dragged the major indexes lower, with Tesla and Nvidia respectively losing 5.8% and more than 4%. Amazon shed 3%, and Meta Platforms suffered losses too.
Tesla one-year chart
Tesla one-year chart
Adding to the uncertainty, Trump’s tariff policies have already strained investor confidence. The combination of trade tensions and doubts about the Fed’s autonomy has led to a flight from U.S. assets.
The dollar hit a three-year low, while gold prices soared to record highs above $3,400 per ounce as investors sought safe-haven assets.
Market experts warn that prolonged uncertainty could have far-reaching implications. ‘The market is okay with rates coming down,’ reportedly said Thierry Wizman, a global currency strategist. ‘What the market is not okay with is having the president or politicians tell the Fed that the rates need to come down’.
As Trump’s public rebuttal of Powell continues, investors observe the potential implications. The stakes are high, not just for the U.S. economy but for global markets that rely on the stability of American financial institutions.
Investors are left grappling with a volatile landscape, where political pressures and economic policies collide.
Federal Reserve Chair Jerome Powell recently stated that the latest half-percent reduction in interest rates should not be interpreted as a sign that future measures will be equally as aggressive.
The Fed suggests that subsequent adjustments will likely be more ‘modest’.
In his address, the central bank’s chief highlighted their goal to balance curbing inflation with maintaining a robust labour market, basing future decisions on data insights.
‘Moving forward, should the economy evolve as widely expected, our policy stance will progressively adjust towards neutrality. Yet, we are not bound to a fixed course,‘ he clarified during in his statement. ‘Risks are two-way, and our resolutions will be determined one meeting at a time.‘
The Federal Reserve believe, as noted in a recent update, that they are just millimetres away from that ‘elusive’ economic soft landing.
The Dow Jones Industrial Average (DJIA) reached a new record high on Monday 26th August 2024, closing at 41240.
Investors have responded positively to the Federal Reserve’s recent indications that interest rate cuts are highly probable to commence in September 2024.
Market dynamics and sentiment
The rise of the DJIA was propelled by advances in sectors like materials, utilities, and energy. Conversely, the broader market exhibited mixed outcomes. The S&P 500 declined by 0.3%, and the Nasdaq Composite dropped by 0.8%, contrasting with the Dow’s notable performance. This disparity is largely due to the lagging of technology stocks, especially with significant drops in firms such as Nvidia and Tesla.
Federal Reserve
Federal Reserve Chair Jerome Powell’s recent address at the Jackson Hole Economic Symposium was pivotal in bolstering investor confidence. Powell’s remarks indicated that the Fed is ready to cut interest rates, which many investors believe will foster economic growth and stabilise the markets. The expectation of rate cuts has played a significant role in the recent market rally, with predictions of potential reductions up to 1% by the end of 2024.
Dow Jones one day chart at record high
Dow Jones 1 day chart
Despite varied performances across sectors, the Dow reaching a new high signals a wider optimism in the market. As the year unfolds, the dynamics among Federal Reserve policies, corporate earnings, and economic indicators will continue to influence market directions.
The Fed summary stated: “The vast majority” of participants at the July 30-31 meeting “observed that, if the data continued to come in about as expected, it would likely be appropriate to ease policy at the next meeting.”
Markets have fully factored in a rate cut for September, marking the first such move since the initial emergency reductions during the early stages of the Covid crisis.
Federal Reserve Chair Jerome Powell ended a press conference in which he gave markets exactly what they wanted; a strong indication of a September 2024 rate cut.
Powell says September 2024 rate cut ‘on the table’ if inflation continues to cool.
Federal Reserve officials held short-term interest rates steady but observed that inflation is getting closer to its 2% target.
The FOMC did not signal an immediate rate cut; they reiterated that further progress is necessary before considering rate reductions. However, Federal Reserve Chair Powell’s subsequent statement was markedly dovish, hinting at a potential rate cut in September 2024.
Markets were generally happy with the news after moving up all day in anticipation of the confirmation of a September cut. The Dow Jones, Nasdaq, Russell 2000 and S&P 500 all climbed before and after the news.
Jerome Powell appears to be further paving the way for a rate cut at the next meeting in July 2024.
Federal Reserve Chair Jerome Powell reportedly said Monday 15th July 2024 that the central bank will not wait until inflation hits 2% to cut interest rates.
Powell referenced the idea that central bank policy works with ‘long and variable lags’ to explain why the Fed wouldn’t wait for its target to be hit.
‘The implication of that is that if you wait until inflation gets all the way down to 2%, you’ve probably waited too long, because the tightening that you’re doing, or the level of tightness that you have, is still having effects which will probably drive inflation below 2%,’ Powell reportedly said.
Instead, the Fed is looking for ‘greater confidence’ that inflation will return to the 2% level, Powell remarked.
‘What increases that confidence in that is more good inflation data, and lately here we have been getting some of that,’ he reportedly said.
Powell also said he thinks a ‘hard landing’ for the U.S. economy was not ‘a likely scenario.’
It looks like it is time for that rate cut, he didn’t say that!
Fed Chair Jerome Powell reportedly said he and his colleagues remain steadfast in getting policy in line with their 2% inflation target, but ‘we are not confident that we have achieved such a stance’.
He stressed the Fed nevertheless can be cautious as the risks between doing too much and too little have come into closer balance.
Federal Reserve Chairman Jerome Powell reportedly said Thursday 9th November 2023 that he and his fellow policymakers are encouraged by the slowing pace of inflation but are unsure whether they’ve done enough to keep the momentum going.
Inflation battle
Speaking a little more than a week after the central bank voted to hold rates steady, Powell said in remarks aimed at the International Monetary Fund (IMF) gathering in Washington, D.C., that more work could be ahead in the battle against high prices.
The statement comes with inflation still well above the Fed’s long-standing goal but also considerably below its peak levels in the first half of 2022. After 11 U.S. rate hikes, we have witnessed the most aggressive policy tightening since the early 1980s, the FOMC have increased rates from pretty much zero to a range of 5.25%-5.5%.
Those increases have coincided with the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, to fall to an annual rate of 3.7%, from 5.3% in February 2022. The more widely followed consumer price index peaked above 9% in June of last year.
Progress
Powell referenced the progress the economy has made. Gross domestic product (GDP) accelerated at a ‘quite strong’ 4.9% annualised pace Q3 2023, though Powell also said the expectation is for growth to ‘moderate in coming quarters’. He described the economy as ‘just remarkable’ in 2023 in the face of a broad expectation that a recession was inevitable.
Nothing like a massive ‘self-pat’ on the back for a job well-done? Remember the Fed’s initial analysis? IT was for inflation to be ‘transitory’. They didn’t get that right either.
Futures pricing, according to the CME Group, suggested there’s less than a 10% chance that the FOMC will approve a final rate hike at its Dec. 12-13, 2023, meeting, even though committee members in September pencilled in an additional 0.25% rise before the end of 2023.
Impression drawing of Fed Chair. The Fed is ‘not confident’ according to Jerome Powell.
Traders anticipate the Fed will start cutting rates next year, probably around June 2024.
The Federal Reserve held interest rates steady in a decision released Wednesday 20th September 2023, while also indicating it still expects one more hike before the end of the year and fewer cuts than previously indicated next year.
That final increase, if realised, would be it for now according to data released at the end of the Fed two-day meeting. If the Fed goes ahead with the move, it would be the twelfth rate hike since policy tightening began in March 2022.
No change priced in
Markets had fully priced in no move at this meeting, which kept the fed funds rate targeted in a range between 5.25%-5.5%, the highest in some 22 years. The rate fixes what banks charge each other for overnight lending but also affects many other forms of consumer debt too.
While the no-hike was expected, there was plenty of uncertainty over where the rate-setting Federal Open Market Committee (FOMC), would go from here.
Judging from reports released Wednesday 20th September 2023, the bias appears towards more restrictive policy and a higher-for-longer approach to interest rates.
