Federal Reserve Chair Jerome Powell stated on Wednesday that political considerations did not influence the Federal Reserve’s decision to exit a global climate-focused group and will not impact its interest-rate policies.
While Powell acknowledged that the Federal Reserve is adjusting its workforce policies to align with President Donald Trump’s executive order banning diversity and inclusion promotions, he emphasized that any changes would comply with the law. He reaffirmed his belief that diversity remains a key factor in organizational success.
Commitment to Monetary Policy Independence
The Fed remains steadfast in its independence, arguing that political interference in interest-rate decisions would hinder its ability to manage inflation. Despite Trump’s past criticism of Powell and the Fed, the central bank continues to resist political pressure.
Trump recently stated he would “demand” immediate interest-rate cuts. However, Powell refrained from commenting on the president’s remarks, instead assuring the public that the Fed will remain focused on its mandate, using its tools to achieve economic stability.
Inflation and Economic Outlook
With inflation still above the Fed’s 2% target, Powell indicated that interest rate cuts would only be considered if inflation shows further progress or if labor market weaknesses emerge. He declined to speculate on how Trump’s policies on trade, immigration, taxes, and regulation might impact the economy, stating that the Fed would assess policies once enacted.
Commenting on the Federal Reserve outcome Mr. Dhiraj Relli, MD & CEO of HDFC Securities said:
“FOMC maintained its target range for the federal funds rate at 4.25%-4.5%. The Fed also made no change to its balance-sheet-reduction program, known as quantitative tightening. Fed Chair Powell took a measured stance in his post-meeting press conference, acknowledging progress in inflation cooling while reiterating that the central bank remains data-dependent. Jerome Powell’s comments did little to alter investor expectations for rate cuts later in the year. This is the first key decision from the central bank under President Donald Trump’s second term and comes after Trump said he should have some say in Fed policy. Trump, prioritizing economic growth and low interest rates, criticized Powell’s independent actions as Federal Reserve Chair.
Trump’s focus on immediate economic indicators and boosting the stock market clashed with Powell’s longer-term perspective on inflation control. This strained relationship undermines public trust in the Fed’s independence, a crucial element of its effectiveness. This visible disagreement demonstrated the challenges of balancing political pressures with the central bank’s mandate for economic stability. Fed officials must now determine whether today’s expected pause is a one-meeting hold or the start of a longer stretch, he added .”
Interest Rates Held Steady
In a unanimous decision, the Federal Reserve announced that interest rates would remain unchanged within the 4.25-4.50% range, citing persistently elevated inflation and economic uncertainty.
Despite economic concerns, the central bank noted that economic activity continues to expand at a solid pace. The Fed also highlighted stable unemployment rates and strong labor market conditions.
This decision is expected to create tension between the central bank and the newly inaugurated president, who has expressed a desire for influence over Fed policy. However, Powell and the Fed remain resolute in their commitment to independent economic decision-making.
Commenting on the Federal Reserve decision Dhawal Ghanshyam Dhanani, Fund Manager, SAMCO Mutual Fund said:
With inflation still elevated and labour market conditions solid, the “Fed Pivot” has come to a standstill. The Fed kept rates unchanged and unequivocally suggested that they need not be in a hurry to adjust policy rates. The decision followed three consecutive rate cuts since September last totaling 100 bps, and marked the first FOMC meeting since the new administration assumed office. This certainly gives the impression that FOMC wants to buy time to assess and digest the impact of the current administration’s policies on tariffs, tax cuts, deregulation, and the like. Powell’s clarification on the 2% inflation goal appeared dovish, resulting in the softening of bond yields. All in all, the pause aligns with market expectations.
