Split Federal Reserve Holds Interest Rates Steady Despite Trump’s Calls

Split Federal Reserve Holds Interest Rates Steady Despite Trump’s Calls

Two Fed governors dissent as US GDP accelerates at a 3% annual pace in Q2

The Federal Reserve opted on Wednesday to keep its key interest rate unchanged, standing firm against President Donald Trump’s repeated urgings for rate cuts.

Fed officials stressed that prevailing economic uncertainties remain too significant to warrant a reduction in borrowing costs, even as criticism from the White House intensified. In an unprecedented split since 1993, two governors—Christopher Waller and Michelle Bowman, both appointed by Trump—voted against the decision, advocating an immediate rate cut. Both have been mentioned as potential successors to Chair Jerome Powell.

New data released on the same day underscored the US economy’s surprising strength in the second quarter. Gross domestic product expanded at an annualized rate of 3% in Q2 2025, outpacing the 2.5% gain economists had forecast and marking a sharp turnaround from the 0.5% contraction in Q1.

That earlier slump was driven largely by a rush of imports as businesses stockpiled goods ahead of Trump’s tariff hikes. But in Q2 imports plunged by 30%, contributing significantly to the rebound in overall growth.

Seizing on the GDP figures, Trump renewed his demand for lower rates and took aim at Powell, whom he derides as “Too Late.” On Truth Social, the president proclaimed, “Just released Q2 GDP: 3%, MUCH BETTER THAN EXPECTED! ‘Too Late’ NOW WE MUST LOWER THE RATE! No inflation! Let people buy and refinance their homes!”

In response, Powell cautioned that the full impact of tariffs on prices remains uncertain. “We’re beginning to see tariffs reflected in the prices of some goods, but the overall effects on economic activity and inflation are still unfolding,” he told reporters. He warned that while tariffs may spark a one-off price increase, they could also contribute to more persistent inflationary pressures.

Powell elaborated, “What we’re observing now is the onset of whatever effects goods tariffs may have on inflation. These impacts might be smaller or larger than our estimates. They won’t be zero—consumers will pay some, businesses will pay some, retailers will pay some.”

The Fed’s policymaking arm, the Federal Open Market Committee, meets eight times a year to adjust rates. After cutting rates three times last autumn by a combined one percentage point, the FOMC has left borrowing costs unchanged in its past five meetings. The current federal funds rate sits in a range of 4.25% to 4.5%.

Officials say the economy’s heightened volatility—partly driven by the ongoing tariff battles—justifies a pause, as the Fed balances its “dual mandate” of stable prices and maximum employment. The tariff-driven jump from 2.3% inflation in April to 2.7% in June underscores the challenge of steering between growth and price stability.

Trump’s push to replace Powell has eased somewhat, but he continues to press for lower rates. In recent weeks, the president and his allies have also spotlighted the soaring costs of renovating the Fed’s Washington headquarters buildings—projects not undertaken since the 1930s, the Fed explains, due to the complexity of upgrading century-old structures.

Last week Trump donned a hard hat for a surprise tour of the Fed premises, framing the renovations as wasteful overspending. An uncharacteristically exasperated Powell interjected when Trump asserted a $3.1 billion tab, noting the figure included work on another Fed office completed five years ago.

Asked whether he still intended to remove Powell, Trump softened his tone: “I don’t think it’s necessary. I think he’ll do the right thing.”

Powell later described the visit as positive. “We had a pleasant meeting with the president. It was an honor to have him,” he said. “It’s rare for the Fed chair to tour our buildings.”