The Federal Reserve (Fed), the central bank, froze its benchmark interest rate at 3.50-3.75% on the 28th, despite continued pressure from President Donald Trump to lower it.
The Fed announced its decision to maintain the target range after the first regular Federal Open Market Committee (FOMC) meeting of the year, which ran from the previous day to the same day. This marks the end of the Fed’s string of rate cuts, which included three consecutive 0.25 percentage point (P) rate cuts in September, October, and December of last year. The Fed’s decision to adjust its pace appears to be based on a judgment that inflation risks stemming from President Trump’s massive tariffs have not yet subsided.
In his economic speech in Iowa the previous day, President Trump subtly pressured a rate cut, saying he would “soon announce” a successor to Fed Chairman Jerome Powell and that under the new chairmanship, “you’ll see interest rates come down significantly.” However, the Fed explained its decision to hold interest rates steady, stating, “Available indicators suggest that economic activity has been expanding at a robust pace,” while also noting that “employment growth remains low, the unemployment rate is showing signs of stabilizing, and inflation remains somewhat elevated.”
Regarding its twin goals of “maximum employment and inflation around 2%,” the Fed stated, “Uncertainty about the economic outlook remains high,” and “We are mindful of risks to both objectives.” In a press conference following the interest rate announcement, Federal Reserve Chairman Jerome Powell stated, “The U.S. economic growth outlook has clearly improved since the FOMC’s December meeting,” and explained that the current interest rate level “is well positioned to address the risks we face between the Fed’s two objectives.”
Powell noted, “There was broad support within the committee, including non-voting members, for keeping rates on hold.” However, he added, “No one expects the next rate adjustment to be a rate hike,” indicating that a rate hike is not currently being considered.
The Fed’s interest rate decision was once again unanimous. Ten of the twelve voting members, including Chairman Powell, voted to keep rates steady. However, the Fed reported that two Fed governors, Stephen Myron and Christopher Waller, voted against holding rates steady, favouring a 0.25 percentage point cut.
Myron served as Chairman of the Council of National Economic Advisers in the Trump administration, and Waller is one of four candidates for the next Fed chairman under consideration. The opinions of these Trump allies appear to be aligned with President Trump’s continued call for a rate cut. However, Michelle Bowman, also known to be among the four candidates for the next chairman, voted in favour of holding rates steady.
During the press conference, Chairman Powell was asked about the Trump administration’s attempts to oust him, including pressure from the judiciary, but he remained cautious and declined to comment. The Fed’s decision also maintains the interest rate differential between Korea (2.50%) and the US at 1.25 percentage points, based on the upper limit.
The Bank of Korea previously held its base rate at 2.50% for the fifth consecutive time at its Monetary Policy Direction Meeting on the 15th.