The Fed Opts Not To Cut Interest Rates Again—Even As Trump Ups Attacks On Fed Boss Powell

The Federal Reserve held interest rates steady at 4.25%-4.5%, defying President Trump's calls for aggressive cuts, and signaled caution amid tariff uncertainties. The Fed's economic projections revealed a slight downgrade in GDP growth forecast to 1.4% and increased forecasts for unemployment and core inflation, while maintaining the projection of two 25 basis-point rate cuts this year. Despite pressure from the White House, the Fed remains hesitant to lower rates, citing potential inflationary impacts from tariffs, with Goldman Sachs economists projecting inflation to rise to 3.3% by December.

Analysis

The Federal Reserve maintained its target federal funds rate at the 4.25% to 4.5% range, a decision widely anticipated by markets, with CME Group’s FedWatch Tool indicating only a 0.1% probability of a rate cut. This hold occurred despite aggressive public pressure from President Donald Trump for significant monetary easing. The Federal Open Market Committee's updated quarterly summary of economic projections revealed a more cautious outlook: the fourth-quarter real gross domestic product growth forecast for the current year was revised downward to 1.4% from 1.7%. Furthermore, median forecasts for December 2025 indicated an increase in the unemployment rate to 4.5% and core inflation to 3.1%, both potential multiyear highs. Notwithstanding these more bearish long-term projections, the Fed reiterated its expectation of two 25 basis-point rate cuts occurring within the current year. The central bank's current hesitancy to lower rates, even as some economic data might typically support such a move, is primarily attributed to the uncertain impact of tariffs on inflation. Supporting this concern, Goldman Sachs economists project core personal consumption expenditures inflation to rise to 3.3% by this December.

Key Decisions for Investors

• Investors should closely monitor incoming inflation data and labor market reports, as these will be critical determinants for the Federal Reserve's execution of the two projected 25 basis-point rate cuts this year, especially given the revised forecasts for higher long-term inflation and unemployment.
• Consider portfolio adjustments in light of the Fed's projected slowdown in real GDP growth to 1.4% for the fourth quarter of this year, coupled with expectations of rising core inflation (Goldman Sachs forecasting 3.3% core PCE by this December, Fed forecasting 3.1% by December 2025) and unemployment (Fed forecasting 4.5% by December 2025), assessing resilience across interest-rate sensitive sectors and those impacted by economic growth.
• Factor in the persistent political pressure exerted on the Federal Reserve, which, while publicly resisted, introduces an element of uncertainty that could contribute to market volatility or shifts in future monetary policy communication.