US Fed leaves rates unchanged despite Trump’s pressure, with two governors dissenting

[WASHINGTON] The US central bank held interest rates steady on Wednesday and Federal Reserve Chair Jerome Powell’s comments after the decision undercut confidence that borrowing costs would begin to fall in September, possibly stoking the ire of President Donald Trump who has demanded immediate and steep rate relief.

Powell said the Fed is focused on controlling inflation – not on government borrowing or home mortgage costs that Trump wants lowered – and added that the risk of rising price pressures from the administration’s trade and other policies remains too high for the central bank to begin loosening its grip until more information is collected.

While there will be two full months of data before the Fed‘s September 16-17 meeting, Powell said the Fed was still in the early stages of understanding how Trump’s rewrite of import taxes and other policy changes will unfold in terms of inflation, jobs and economic growth.

“You have to think of this as still quite early days,” Powell said in a press conference after the release of the Fed‘s latest policy statement. “There’s quite a lot of data coming in before the next meeting. Will it be dispositive? … It is really hard to say.”

Those comments, and others that placed the burden on upcoming data to convince policymakers that lower rates were warranted, led investors to cut the probability of a rate cut in September to less than 50 per cent, after entering this week’s two-day Fed meeting at nearly 70 per cent.

The latest policy decision was made after a 9-2 vote by the rate-setting Federal Open Market Committee, what passes for a split outcome at the consensus-driven central bank, with two Fed governors dissenting for the first time in more than 30 years.

Along with Powell’s comments, the Fed‘s new policy statement also gave little hint that rates were likely to fall soon.

“The unemployment rate remains low, and labour market conditions remain solid. Inflation remains somewhat elevated,” the central bank said after voting to keep the benchmark overnight interest rate steady in the 4.25 to 4.50 per cent range for the fifth consecutive meeting.

The statement noted that economic growth “moderated in the first half of the year,” possibly bolstering the case to lower rates at a future meeting should that trend continue.

But it also said “uncertainty about the economic outlook remains elevated,” with risks to both the Fed‘s inflation and employment goals, language that has anchored its reluctance to cut rates until the path of inflation and jobs becomes clearer.

Powell was careful to keep his options open on monetary policy. “We have made no decisions about September” and have time to take in a wide range of data before the central bank next meets in mid-September, he said.

Powell noted that current monetary policy is appropriately set at “modestly restrictive” levels, as some risks to the outlook have risen.

Both Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, who has been mentioned as a possible nominee to replace Powell when his term expires next May, were appointed to the board by Trump and “preferred to lower the target range for the federal funds rate by one quarter of a percentage point at this meeting,” the Fed‘s policy statement said.

Powell, a bipartisan figure who was appointed to the Fed‘s board by former President Barack Obama and later promoted to the top job by Trump, voted to hold rates steady, as did three other governors and the five Fed regional bank presidents who currently hold a vote on the FOMC.

The Fed‘s regional bank presidents are hired by local boards of directors who oversee the Fed‘s 12 regional institutions.

Governor Adriana Kugler was absent and did not vote.

Dissenting members of the FOMC often release statements explaining their vote on the Friday following Fed meetings.

‘Wait-and-see’ approach

Treasury yields rose after Powell’s comments while the S&P 500 and Dow Jones Industrial Average equities indexes closed marginally lower.

The data since the Fed‘s June 17-18 meeting has given policymakers little reason to shift from the “wait-and-see” approach they have taken on interest rates since Trump’s Jan 20 inauguration raised the possibility that new import tariffs and other policy shifts could put upward pressure on prices.

The unemployment rate is still low at 4.1 per cent, and recent inflation data showed faster increases for some heavily imported goods – a development policymakers will watch in the coming weeks.

The Commerce Department earlier on Wednesday reported that US growth rebounded more than expected in the second quarter, but declining imports accounted for the bulk of the improvement and domestic demand rose at its slowest pace in 2-1/2 years.

Trump has berated Powell in particular for not cutting rates to try to lower the government’s borrowing costs, a concern outside the Fed‘s congressionally-mandated goals of maintaining stable inflation and maximum employment. REUTERS