The US Federal Reserve voted to hold interest rates on Wednesday despite White House pressure to lower borrowing costs.
The Fed said it will keep its key lending rate between 3.5% to 3.75%, stating that economic activity in the US “has been expanding at a solid pace”.
There are signs the employment market is stabilising – job creation is sluggish, but the unemployment rate has ticked lower. Policymakers continue to monitor the economic impact of three interest rate cuts last year.
Trump is soon expected to announce a replacement for Fed chair Jerome Powell, whom the president has frequently criticised for not reducing interest rates quickly enough.
Two Fed officials voted in favour of an interest rate cut – Stephen Miran, who is on leave from his post at the White House where he leads Trump’s Council of Economic Advisers, and Christopher Waller, a Trump appointee whose name has been floated as contender to succeed Powell.
Despite the dissents, the Fed board stressed improvements in recent economic data, which gave policymakers confidence to hold rates steady.
It said: “Job gains have remained low, and the unemployment rate has shown some signs of stabilisation.”
But looming in the background is a recent federal criminal probe that has intensified concern about political pressure on the Fed and its independence.
After a year of Trump’s relentless attacks on Powell – whose term as chair ends in May – federal prosecutors opened a criminal investigation earlier this month over testimony he gave to a Senate committee last year about renovations to Federal Reserve buildings.
Wall Street investors are eagerly awaiting Powell’s press conference following the central bank’s rate decision – his first since condemning the Department of Justice (DoJ) probe.
The S&P 500 stock index fluctuated ahead of his remarks, briefly surpassing 7,000 points for the first time on Wednesday morning.
Powell previously said he believed the federal investigation stemmed from Trump’s anger that the Fed had not brought interest rates down quickly enough.
Former heads of the US central bank strongly criticised the investigation, too, describing it as a bid to undermine the Fed’s independence.
The president has publicly urged Powell to cut interest rates in order to reduce the US government’s hefty borrowing costs and to make it easier for Americans to get mortgages and other loans.
Trump has also launched personal attacks against Powell – whom the president appointed as Fed chair during his first term in the White House – calling the central banker a “major loser” and “numbskull”.
Last August, Trump said he was removing Federal Reserve Governor Lisa Cook, accusing her of mortgage fraud, a claim she has denied. The Supreme Court is now weighing the case.
Justices from the left and right last week cited concerns about implications for central bank independence and the wider economy.
Another wild card looming over Wall Street: Trump’s pick to replace Powell at the end of his term.
Whoever steps into the role will inevitably face credibility concerns, as Trump’s pressure on the Fed has raised questions about whether the next chair will act independently.
BlackRock executive Rick Rieder has emerged in recent days as a front-runner.
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