The US central bank decided to maintain its monetary policy in a range of 3.5% to 3.75%, prioritizing caution in the face of persistent inflation, weak employment, and tensions with the White House.
The US Federal Reserve began its monthly meeting this Tuesday with the expectation of keeping the benchmark interest rate range unchanged at the current level of between 3.5% and 3.75%. The institution, which considers its monetary policy to be at a neutral point, seeks to address inflationary pressure and the relative weakness of the labor market, while political tensions with the Donald Trump administration are growing.
Analysts and economists agree that the Federal Open Market Committee (FOMC) will opt for caution, after having made three consecutive quarter-point cuts in 2025. The minutes of the last meeting reflect a majority stance to keep the target range unchanged for the next few months. Fed Chair Jerome Powell indicated after the last meeting that the institution is “well-positioned to wait and see how the economy evolves” before making new decisions.
Market projections suggest that any additional cycle of cuts could be postponed until the end of 2026. Erik Weisman and Kish Pathak, chief economist and fixed income analyst at MFS Investment Management, emphasized that the labor market “is weak, but not collapsing,” and described the disinflationary process as slow, influenced by the tariffs imposed by Trump. The persistence of doubts about the impact of immigration restrictions on labor supply and wage inflation reinforces the Fed's cautious approach.
The performance of the Gross Domestic Product (GDP) in the third quarter of last year, with an annualized growth of 4.4%, and the solid forecasts for the end of 2025, give the institution room to maintain its strategy. At the same time, inflation continues above the official target, with prices rising 2.8% year-on-year in November, according to the Fed's preferred indicator.
The Fed meeting comes amid unprecedented pressure from the White House. President Trump reiterated on Tuesday his desire to "see interest rates go down," while he is expected to announce his nominee to chair the institution shortly, following the expiration of Powell's term in January. Among the names mentioned are former governor Kevin Warsh and economic advisor Kevin Hassett.
U.S. President Donald Trump and Federal Reserve Chairman Jerome Powell speak during a tour of the Federal Reserve Board building, which is currently undergoing renovations, in Washington, D.C., U.S., July 24, 2025. REUTERS/Kent Nishimura
The Fed's independence has been tested by recent legal and political actions. The Department of Justice subpoenaed Powell in a criminal investigation related to a $2.5 billion headquarters renovation, an unprecedented event for a sitting chairman of the institution. Powell called the subpoenas "pretexts" to punish the Fed for not cutting rates as Trump demands. In addition, the Supreme Court considered whether Trump could remove Governor Lisa Cook for alleged mortgage irregularities, although no decision has yet been made.
Despite the climate of political pressure, several economists, such as Michael Gapen of Morgan Stanley, maintain that the Fed will continue to be guided by economic criteria. Central bank officials have indicated that, barring a marked deterioration in employment or a surge in unemployment, no further cuts are expected in the short term. Expectations on Wall Street point to only two quarter-point cuts during the year, while the stabilization of the labor market and the potential rebound in growth reinforce the Fed's wait-and-see approach.
(With information from AFP, EFE and AP)
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