Two Trump appointees vote to cut rates as Fed holds steady

The Federal Reserve on Wednesday left its key interest rate unchanged, a widely expected move that comes despite enormous pressure from the Trump administration to lower it.

The Fed, in a statement announcing the decision, said that economic growth had moderated in the first half of the year but that inflation remained “somewhat elevated.”

Two Federal Reserve officials, both appointed by President Donald Trump, dissented from the decision, something that has not occurred in more than three decades — a sign of both the economic uncertainty and the political pressure on the central bank.

Ahead of the announcement, traders had put the odds of the Fed maintaining the current rate of about 4.5% at a near certainty — despite repeated calls from the Trump administration to lower it.

Trump has argued for lower rates in hopes of improving economic growth, arguing there is “no inflation,” while Fed officials have signaled that the president’s tariffs are putting price pressures back into the economy and thus require putting a lid on consumption and investment, in part by holding back on interest rate cuts.

Though the administration hailed a report Wednesday showing stronger than expected economic activity in the second quarter, buried in it was data showing a key measure of inflation for the first half of the year coming in at 3% — higher than last year’s rate of 2.8% and far beyond forecasts of 2.2%.

“I don’t think people appreciate just how much re-inflation we’ve had,” Jason Furman, Harvard economist and former deputy director of the National Economic Council under President Joe Biden, said Wednesday in a post on X.

One major consumer brand, Procter & Gamble, already signaled Tuesday it plans to increase prices in part to blunt the hit from tariffs.

The Fed has said Trump’s tariffs are making it difficult for it to lower rates, something that would otherwise be called for amid signs of slowing economic activity. Following the stronger than expected GDP report, traders dialed back the existing odds of a Fed cut in September, when it will hold its next meeting — though the chances for one still remain greater than even.

“This is not a catastrophic recession or inflation but it is a cause for serious concern — and a real quandary for the Fed,” Furman wrote of Wednesday’s GDP report.

In a note to clients Wednesday morning ahead of the Fed announcement, analysts with JPMorgan said GDP is now running at a rate of 1.25% and will likely slow to 0.75% in the back half of this year.”

“The Fed now knows that its preferred inflation measure is running a touch hotter than it had appeared yesterday,” they said.