Update 885 – Fed Not Ready to Cut;
Dissents from Two Chair Aspirants
The Federal Reserve hit pause, as expected, on interest rates at the conclusion of its July FOMC meeting this afternoon, with two Trump-appointed Fed Governors – Waller and Bowman – dissenting. Such a dissent is rare. Today marks the first time two FOMC officials have dissented since 2020. While many expected Fed Chair Powell to hint at a coming rate cut at the FOMC’s next meeting in September, he instead emphasized that the Fed has made no decision about future cuts.
The contentious interest rate decision comes amid President Trump’s increasingly aggressive campaign to pressure Powell to lower rates, and as inflation has begun rising due to the administration’s sweeping tariff policy. Powell noted that tariffs have begun pushing inflation up, slowing growth, and increasing unemployment. We cover the decision in detail below.
Best,
Dana
Fed Holds Key Rate Steady
The Federal Reserve announced on Wednesday that it will hold interest rates steady at the 4.25 to 4.5 percent range. This is the fifth consecutive occasion on which the Federal Open Market Committee (FOMC) has opted to leave rates unchanged after initiating rate cuts late last year. The highly expected but contentious pause came at the conclusion of the FOMC’s meeting this week.
Two Trump-appointed Fed governors – Governor Christopher Waller and Vice Chair of Supervision Michelle Bowman – dissented, supporting a 25 basis-point cut instead of a pause on the first decision in which two FOMC officials have dissented since September 2020. Governor Adriana Kugler did not attend the meeting and therefore did not vote.
At Federal Reserve Chair Jerome Powell’s press conference following the meeting, he chose not to offer any indication of whether Committee officials would cut rates by 25 basis points or hold rates steady once again at its next meeting in September.
Powell noted that growth has moderated, with new data released this morning showing that growth slowed to 1.2 percent over the first half of this year, down from 2.5 percent last year. The advanced estimate of second quarter GDP showed that the U.S. economy grew by 3.0 percent over April, May, and June after contracting by 0.5 percent over January, February, and March. As Powell noted, considering growth over the first half of the year as opposed to growth over individual quarters allows us to smooth over volatility caused by swings in net exports, which continue to affect incoming data.
Prices have also begun to rise following the implementation of the Trump administration’s tariff policy over the past several months, and inflation remains above the Fed’s two percent target. The Fed’s preferred measure of inflation, the personal consumption expenditures (PCE) price index, rose to 2.5 percent on an annualized basis in June, up from 2.3 percent in May. Inflation as measured by the Consumer Price Index (CPI) rose to its highest level since February – 2.7 percent on an annualized basis – in May. Powell also noted that near-term measures of inflation expectations have moved up over the course of this year, while most expectations remain consistent with the Fed’s two percent goal.
The labor market has remained strong, but has begun showing signs of weakening. Unemployment remains low, but job openings are falling, and wage growth has continued to moderate. Job openings fell to 7.4 million in June from 7.7 million in May, according to data released by the Bureau of Labor Statistics yesterday. Powell said that overall, conditions in the labor market are broadly in balance and consistent with maximum employment.
Economy Grows by 1.2% Over First Half of 2025
The Trump administration’s tariff policy has also led to weaker growth over the first half of this year. The United States economy grew by 1.2 percent over the first half of 2025 after growing by 2.4 percent on an annualized basis in the fourth quarter of last year and by 2.8 percent over the entirety of 2024.
The administration’s unpredictable and often shifting tariff policy has skewed data on growth during the first half of 2025, as swings in net exports affected incoming data. The United States economy contracted by 0.5 percent during the first quarter as the Trump administration’s chaotic tariff announcements and broader policy created uncertainty for businesses and consumers across the economy prior to early April’s sweeping tariffs announcement. Businesses increased imported purchases ahead of anticipated tariffs, with imports (a subtraction in the calculation of GDP) increasing by 41 percent over the first quarter.
During the second quarter, the United States economy grew by 3.0 percent on an annualized basis, according to the advanced estimate of second quarter GDP released by the Bureau of Economic Analysis (BEA) yesterday morning, far surpassing expectations. This period includes the months immediately following President Trump’s announcement of sweeping “Liberation Day” tariffs on April 2, and during which the administration has adjusted its tariff policy and engaged in negotiations with trading partners throughout the globe.
The increase in real GDP in the second quarter primarily reflected a decrease in imports and an increase in consumer spending.
- Imports – Imports fell by 30 percent during the second quarter, after rising by almost 38 percent in the first quarter when businesses increased their stockpiles ahead of expected tariffs.
- Exports – Exports fell by 1.8 percent during the second quarter.
- Consumer spending – Consumer spending rose by 1.4 percent over the second quarter after rising by only 0.5 percent over the first quarter of the year due to consumers facing economic uncertainty.
The data suggests some signals of a slowdown. Private domestic final purchases (PDFP) – an indicator of demand by private sector firms which strips out trade, inventories, and government spending – rose by 1.2 percent over the first quarter after rising by 1.9 percent over the first quarter. The data shows that the U.S. economy remains resilient and growth remains strong beneath the Trump administration’s tariffs at the current moment.
Fed Must Hold Ground Amid Threats to Independence
With growth over the first half of this year slower than over the first half of last year, inflation rising, the labor market at risk of weakening, and the Trump administration’s policy agenda unfolding and remaining subject to change, the Fed faces the challenge of deciding monetary policy within an economy giving mixed signals. In the coming months, the Fed may find itself in a challenging position in which its dual mandate goals are in tension. FOMC officials may prefer to keep rates elevated with inflation rising, but may be cautious of keeping monetary policy tight to protect the strength of the labor market and growth. As the Trump administration’s tariffs and broader economic policies continue to settle into the economy, the risk of stagflation – conditions where inflation and unemployment rise while growth remains stagnant – persists.
Fed Chair Powell must continue to hold his ground and maintain the independence of the Fed’s interest rate decisions, rather than give in to pressure from President Trump and his senior administration officials to lower rates quickly. Trump has threatened to fire Powell before the end of his term next year. The President intensified his pressure campaign last week when he reiterated his call for Fed Chair Jerome Powell to lower interest rates during a near-impromptu visit to the site of the Fed’s ongoing building renovations, during which he appeared to attempt to lay the groundwork for a “for-cause” firing.
It is critical that members of Congress defend the integrity of the FOMC, particularly given that monetary policy can be a key tool in protecting the economy during periods of stress. The FOMC meets next to determine the fate of interest rates on September 16 and 17.