Jay Powell strikes hawkish tone as Fed defies Donald Trump’s calls for rate cut
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The Federal Reserve has signalled that it could hold rates steady at least through September as it defies Donald Trump’s repeated calls for the central bank to dramatically lower borrowing costs.
The central bank left borrowing costs unchanged at 4.25 per cent to 4.5 per cent after a meeting on Wednesday, despite an aggressive campaign by the US president to slash borrowing costs to 1 per cent and continuing uncertainty over the impact of his trade policy on the economy.
Fed governors Michelle Bowman and Christopher Waller dissented with the decision, saying the central bank should have cut
Official figures from the Bureau of Economic Analysis on Wednesday showed the economy grew at an annualised rate of 3 per cent in the second quarter, up from a 0.5 per cent contraction in the previous period.
The number was driven higher by a sharp drop-off in imports as Trump’s levies came into effect while a rush by companies to purchase foreign goods in the first three months of the year sharply reversed.
Overall, the economy grew at a 1.1 per cent annualised rate in the first half of 2025, compared with 2.9 per cent in the second half of the previous year, according to Financial Times calculations.
Consumer spending, the crucial driver of the US economy, also cooled in the first half of 2025 compared with the end of 2024.
“This softness in consumption could continue in the second half of the year in our view as consumers are worried about labour market prospects and businesses are being cautious with hiring,” Citigroup economists said.
Analysts at JPMorgan added that they expected growth to slow further to an annualised 0.75 per cent in the second half of the year.
“We expect a further softening of demand into [the second half] as the impacts of recent protectionism and deportations are felt,” the Wall Street bank said.
