The Federal Reserve is expected to keep its short-term interest rate unchanged at its meeting on Wednesday, despite pressure from the White House to lower borrowing costs. The central bank cut interest rates three times last year to support the economy and prevent a sharper deterioration in the job market, but with signs of stabilization in unemployment and potential economic growth, officials are likely to wait and see how the economy evolves before making any further changes. Inflation remains above the Fed’s 2% target, which also argues for keeping rates steady.
The Fed’s rate-setting committee is split between those who want to keep rates unchanged until inflation comes down and those who want to lower rates to further support hiring. In December, only 12 of the 19 committee members supported at least one more rate cut this year, and most economists forecast that the Fed will cut rates twice this year, likely at the June meeting or later.
The Fed is meeting under intense pressure from the Trump White House, with the president suggesting that he is close to naming a new Fed Chair to replace Jerome Powell, whose term ends in May. However, the president’s efforts to pressure the Fed may have backfired, with Republicans in the Senate voicing support for Powell and threatening to block Trump’s replacement chair.
Despite the turmoil, Powell has been relatively quiet in recent months, giving only one speech on the economy since September. Other Fed officials, such as Anna Paulson, president of the Philadelphia Fed, have expressed skepticism about the need for further rate cuts, citing an improving economy and moderating inflation. Paulson suggested that some modest further adjustments to the Fed’s key rate may be appropriate later in the year if the economy continues to grow and inflation remains under control.
The economy is showing signs of growth, with larger-than-usual tax refunds expected to fuel consumer spending in the coming months. However, hiring remains weak, and consumer confidence has dropped to an 11-year low, according to the Conference Board. The Fed will be closely watching these trends as it decides on its next move, with the potential for rate cuts later in the year if the economy continues to grow and inflation remains under control. Overall, the Fed is likely to maintain its current stance and wait for more data before making any changes to interest rates.