Federal Reserve to Maintain Rates at 4.25%-4.5% Despite Trump's Pressure on Powell; July Cut Eyed

The Federal Reserve is expected to maintain its key short-term interest rate within the 4.25% to 4.5% range during its meeting on May 7, 2025, despite ongoing pressure from President Donald Trump to reduce borrowing costs. Trump has publicly criticized Fed Chair Jerome Powell, labeling him as 'Mr. Too Late' and a 'total stiff,' and has called for rate cuts, arguing that inflation has cooled and high rates are no longer necessary. Treasury Secretary Scott Bessent has also supported the call for rate reductions. The Fed's decision comes amidst economic uncertainty driven by Trump's tariff policies, which are anticipated to increase consumer prices in the coming months. Inflation, as measured by the Fed's preferred gauge, stood at 3.6% in the first quarter of 2025, well above the central bank's 2% target. Despite this, the Fed is cautious about cutting rates, wary of past misjudgments on inflation and the potential for tariffs to cause persistent price increases. Elon Musk, head of the Department of Government Efficiency (DOGE), has criticized the Fed for spending $2.5 billion on renovations in Washington, D.C. Economic indicators show mixed signals, with a contraction in GDP during the first quarter of 2025 and robust job growth in April. The Fed is likely to adopt a 'wait and see' approach, monitoring the impact of tariffs on the economy before making any policy changes. This stance is supported by Fed officials who are keen to avoid repeating the mistakes of 2021 when inflation was underestimated. Some economists forecast the Fed might not cut rates until its September meeting, while Wall Street investors project a potential cut in July.