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Fed Pauses Interest Rate Cuts Despite Trump's Push For Immediate Reduction

The Federal Reserve kept its key interest rate in place, pausing further cuts and ignoring a demand by President Donald Trump to immediately drop rates.

Money.

Money.

Photo Credit: Pixabay - NikolayFrolochkin

After three months of reductions, the Fed decided to keep the key interest rate target at 4.25 to 4.5 percent. The Fed announced the decision on Wednesday, Jan. 29, after its first meeting since President Trump returned to the White House.

Chair Jerome Powell said the Fed is monitoring inflation and economic stability under the Trump administration.

"We remain committed to supporting maximum employment, bringing inflation sustainably to our two-percent goal, and keeping longer-run inflation expectations well anchored," Powell said in a news conference. "Our success in delivering on these goals matters to all Americans."

Consumer prices rose 2.6 percent over a 12-month period ending in December 2024 and unemployment remained stable at 4.1 percent. While wage growth has slowed, Powell said the labor market was balanced and had "no significant inflationary pressures."

The decision ended the Fed's trend of dropping the key rate by one percentage point since September 2024. That rate influences many borrowing decisions like mortgages, auto loans, and credit card applications.

The announcement came after an economically turbulent first 10 days of President Trump's second term. An executive order to freeze federal funding caused widespread confusion on Tuesday, Jan. 28, for Medicaid recipients and federal workers until it was blocked that afternoon by a judge to review legal challenges.

Adding to the confusion, the White House rescinded President Trump's memo on January 29 but insisted the freeze remains in "full force and effect."

"This is NOT a rescission of the federal funding freeze," White House Press Secretary Karoline Leavitt said in a social media post. "It is simply a rescission of the [Office of Management and Budget] memo. Why? To end any confusion created by the court's injunction."

President Trump has also threatened many countries with tariffs, which economists say would likely raise prices for US consumers on certain goods.

Most recently, Trump threatened Colombia with tariffs after the country refused to accept two military planes of migrants, with Colombian President Gustavo Petro posting online that "a migrant is not a criminal and must be treated with the dignity that every human being deserves." Petro also issued a scathing statement threatening tariffs on the US and claiming President Trump may "end the human species because of greed."

During a virtual speech to the World Economic Forum on Thursday, Jan. 23, President Trump said he would ask the Fed to "immediately" cut interest rates.

Powell said the Fed is waiting to see how certain policies and trade war concerns could impact the US economy.

"We don't know what will happen with tariffs, with immigration, with fiscal policy, and with regulatory policy," said Powell. "I think we need to let those policies be articulated before we can even begin to make a plausible assessment of what their implications for the economy will be."

Powell also emphasized that the Fed isn't influenced by any politician or political party, sticking to its data-driven approach to assessing the country's financial outlook.

"Lots of research shows that's the best way for a central bank to operate," he said. "That'll give us the best possible chance to achieve these goals for the benefit of the American people. That's always what we're going to do and people should have confidence in that."

The Fed also said 2024's GDP growth was expected to be above two percent, driven by strong consumer spending.

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