Despite Trump's Pressure, Fed Holds Interest Rates Steady

Forbes

31-07-2025

The Federal Reserve kept interest rates steady on Wednesday, July 30, despite high profile pressure from President Trump, who has been long pushed for a rate cut – even during his highly publicized visit with Chair Jerome Powell at the Federal Reserve Building last week.
This was the fifth consecutive meeting at which the Federal Open Markets Committee (FOMC) kept its benchmark Federal Funds rate unchanged at 4.25-4.5%.
According to the FOMC's policy statement: Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year. The unemployment rate remains low, and labor market conditions remain solid.
During his remarks, Chair Powell once again indicated that the FOMC seeks maximum employment and inflation at the rate of 2% over the long run. He said that inflation has 'eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2% longer run goal.'
'Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate,' said Powell.
Powell also conveyed that concern still surrounds Trump's ongoing trade negotiations.
'Changes to government policies continue to evolve, and their effects on the economy remain uncertain,' the Fed Chair said. 'Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen.'
Related: What Trump's Tariffs Will Mean For Small Businesses
Meanwhile, President Trump seems to have scored recent victories by landing a favorable deals with Japan and with the EU, which agreed to meet the U.S. at a 15% tariff rate. Thus, predictions the economists made of rising inflation related to tariff hikes has not occurred. But the trade wars aren't over, and in the same week that he celebrated the agreement with the EU, he hit Brazil with 50% tariffs, which could cause a jump in the price of coffee.
So how is the Fed determining monetary policy? It is looking at numerous factors:
Another factor is political pressure on The Fed – and Chair Powell, in particular, who characterized monetary policy as 'modestly restrictive.' However, the FOMC has maintained its independence and resisted President Trump's repeated calls for lower interest rates. However, this time around the vote was not unanimous, and two Trump-appointed Fed governors, Christopher Waller and Michelle Bowman, dissented and voted in favor of a 0.25% rate cut. It was the first time in more than three decades that two Fed officials dissented during the same vote.
Related: Why Small Business Earnings Are Rising In 2025
What's Next?
Trump believes that the Fed should cut interest rates because the economy is doing well. Not only did Chair Powell hold off on rate cuts, but he also gave no clear indication that the Fed would lower them in September. That will depend on how close the economy gets to its dual goals of full employment and a target inflation rate of 2%.
Lower interest rates will be welcomed by small business owners who have put off borrowing because the Fed had signaled that more rate cuts would be coming by the end of the year. Most small business funding -- lines of credit, term loans, or equipment financing -- are variable rate loans. Thus, business owners who already borrowed will see a decrease in their payments due to lower interest rates when and if they occur. Meanwhile, those who are looking to borrow will be enticed to do so because of the lower cost of capital.
When the cost of borrowing is lower, a small business can expand current operations, upgrade equipment and improve their technology open new locations, purchase more inventory, increase their investment in marketing, and add more staff, if needed. When businesses have to borrow at higher rates, they are less likely to invest in their firms.
Cheaper money encourages a higher level of business borrowing overall, which is good news for banks that focus on small business lending. For startups, growth stage businesses and women-owned and minority-owned firms that may lack cash reserves, lower rates will be quite helpful in managing cash flow gaps. Additionally, seasonal business are better able weather cash flow fluctuations with working capital loans to cover expenses during the slow season. So, if rates go down in September, there may be a big upside for companies that do their peak business in the summer.
Lower interest rates also have an immediate positive impact on consumers who have variable rate mortgages because their payments will go down, which boosts their disposable income and can help stimulate consumer spending. Small businesses – including restaurants, theaters, hotels, and retailers – naturally benefit from an uptick in consumer spending.
What happens over the next six weeks should give the Fed a clearer picture of the future and, hopefully, encourage the central bank to lower interest rates. Yes, the Fed officials will look at the job market and how close we are to the oft-stated 2% inflation target rate. Also factoring into the Fed's calculus are the risk of inflation from the president's tariff wars and slowing domestic growth. Between now and the next meeting on Sept. 16-17, there will be two Jobs Reports from the Bureau of Labor Statistics and two CPI reports for the Fed governors to consider.
'In coming months, we'll receive a good amount of data that will help inform our assessment of the balance of risks and the appropriate setting of the federal funds rate,' the Fed Chair said, without promising a cut in interest rates. 'We will be taking that information into consideration and all the other information we get as we make our decision in September.'