The Federal Reserve held interest rates steady on Wednesday, keeping its benchmark rate at a 23-year high while Chair Jerome Powell reaffirmed the importance of central bank independence amid rising political tensions.
Cautious path despite inflation relief
The decision to maintain the federal funds rate at 5.25 to 5.5 per cent was widely expected, with the Fed signalling that more consistent signs of falling inflation are needed before policy easing can be considered. Despite a sharp decline in inflation from over 9 per cent in mid-2022 to just above 3 per cent today, Powell made clear that the battle is not over. “We need to see more good inflation readings,” he said during the post-meeting press conference, noting that while the trend is encouraging, the committee remains vigilant.
Political climate heats up
Powell’s most striking remarks focused on the Fed’s institutional independence. Without naming names, he stressed that “Fed independence is very important,” a statement interpreted as a subtle message to political figures, including former President Donald Trump, who has previously criticised the central bank and suggested greater executive control over monetary policy. The comments come amid growing concern among economists that political interference could undermine the credibility of US monetary policy in the event of a change in administration in 2025.
No clarity on rate cuts
Markets hoping for a clearer timeline on rate cuts were left without firm guidance. The Fed maintained a data-dependent stance, with Powell avoiding any commitment on when borrowing costs might begin to fall. The central bank continues to seek “greater confidence” that inflation is on a sustainable path to its 2 per cent target before taking any action. Although some traders still anticipate one rate cut before the end of the year, that outlook has weakened following the Fed’s cautious tone.
Market response and economic backdrop
US equity markets showed little reaction, with major indices hovering near recent highs. Treasury yields dipped slightly, reflecting modest expectations for future easing. The labour market remains strong, but signs of cooling in consumer spending and business investment have added to the debate over how long the Fed can maintain such restrictive policy without risking a broader slowdown.
Maintaining credibility under scrutiny
As the US moves closer to a contentious election season, the Fed finds itself under the microscope. Powell’s firm insistence on independence appears designed to reinforce public confidence in the Fed’s long-standing role as a non-political steward of the economy. Whether that message holds under growing political and economic pressure remains to be seen, but for now, the central bank is holding its line—both on policy and on principle.
REFH – Newshub, 1 August 2025
Recent Comments