Despite pressure from President Donald Trump to drop interest rates, the United States Federal Reserve has decided to maintain its current borrowing rate.
The US president requested a reduction of 1% as he is convinced such a cut is likely to promote the growth of the US economy. Despite this, the central bank has stated that it intends to maintain the current rate of 2.25% – 2.5%. Furthermore, the Fed has indicated that there is no intention to adjust the rate for the remainder of 2019.
Trump called out the central bank for what he described as an incessant rising of rates. He went on to state that the country has the potential to set records due to the current low inflation rates.
Chairman of the reserve, Jerome Powell was interviewed and asked if comments such as the ones made by the president have any bearing on decision making. He responded by stating that the central bank is not a political institution, which means that short-term political considerations do not factor into the decision-making process.
The Federal Open Market Committee (FOMC) justified its position as it indicated that it has stuck to a “patient” interest rate approach. To illustrate this, the Fed referenced the following:
● Economic activity may have increased at a solid rate; however, the first quarter showed a slowdown in fixed investment and household spending
● Inflation is lower than the Fed’s targeted 2%
● Compared to the 1.7% growth in February, inflation growth slowed to 1.6% in March
According to Mr. Powell, the FOMC firmly believes that the lower growth is likely to be transient. He further indicated that the Fed is content with its decision and perspective on the matter. The lower inflation is justification for not increasing rates, however, it can also justify the need for cuts should the economy get weaker.