SAN FRANCISCO – Even though the Federal Reserve chairman said the labor market was very strong and the economy is in relatively good shape, the U.S. banking system said Wednesday it would not lower interest rates for now.
Under extreme pressure from the president, the Federal Reserve’s Board of Governors, with some dissent in their ranks, focused on the ‘what ifs.’
Even though the GDP second quarter report came in at 3%, Federal Reserve Chairman Jerome Powell said, comparing the first six months of this year to last year showed U.S. economic output had slowed to about half of what it was in 2024.
Powell added that the nation’s consumer spending slowed in the second quarter, the housing market remained weak, and tariffs have led to increased inflation expectations.
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“We believe that the current stance of monetary policy leaves us well positioned to respond, in a timely way to potential economic developments. My colleagues and I remain squarely focused on achieving our dual-mandate goals of maximum employment and stable prices for the benefit of the American people,” Powell said when he announced the Fed will not lower interest rates.
Trump pressured Powell on social media before the vote.
On social media, Trump posted this statement: “Too Late” MUST NOW LOWER THE RATE. Let people buy, and refinance, their homes!
“We don’t set mortgage rates at the Fed,” Powell said. “We set overnight rates and the rates that go into mortgages are longer-term rates like Treasury rates; might be 30-year rates. might be shorter than that but it’s not the overnight Fed rate.”
Lower interest rates would skew market’s perception, SF expert says
Local perspective:
Terry Connelly, dean emeritus of the Golden Gate University Business School and a former Wall Street banker, says the president is dead wrong and Powell actually did Trump a favor.
“I guarantee you if they had lowered interest rates today, that would be the market’s perception and mortgage rates would be higher tomorrow, not lower because the message [being] that the Fed can be bullied to keep rates low,” Connelly said.
The Federal Reserve’s independence is a cornerstone of the nation’s economy.
“What it gives us and other central banks, it gives you the ability to make these very challenging decisions in what that are focused on the data and the evolving outlook, the balancing of risks and all the things we talk about and not political factors,” said Powell.
What’s next:
Connelly says if the rate is lowered in the fall – it won’t be because they folded to the president.
“If they lower in September, it won’t be because they folded to the President. It would be because there’s really good reason to do it,” he said.
As larger tariffs set in very soon and a solution to the price of homes, not just high interest rates, is found, the Fed is likely to stand by.
The Source: Federal Reserve, interview with Terry Connelly, dean emeritus of the Golden Gate University Business School.
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