Donald Trump dealt public blow as Federal Reserve defies US President's major call

Donald Trump wanted interest rates to be cut (Image: Getty)

Donald Trump's repeated calls for an interest rate cut have been ignored by the US Federal Reserve. The Fed announced on Wednesday (July 30) that it would be leaving its key short-term rate at about 4.3%, where it has remained after the US central bank made three cuts last year.

Its chair, Jerome Powell, has said the Fed would likely have cut rates already if not for Mr Trump’s sweeping trade tariffs. Mr Powell and other Fed officials said they wanted to see how Mr Trump’s duties on imports will affect inflation and the wider economy.

So far the tariffs have raised the cost of goods such as appliances, furniture and toys. Overall inflation has risen slightly, but less than many economists had expected.

The choice not to cut the rate will almost certainly result in further conflict between the Fed and White House. Mr Trump has repeatedly demanded the central bank reduce borrowing costs as part of his effort to assert control over one of the few remaining independent US federal agencies.

Mr Trump argues that because the US economy is doing well, rates should be lowered. But the Fed adjusts rates to either slow or speed economic growth. It is more likely to keep rates high if the economy is strong to prevent inflation rising.

The US government said earlier today (July 30) the economy expanded at a healthy 3% annual rate in the second quarter of this year.

That figure came after a negative reading for the first three months of the year when the US economy shrank 0.5% at an annual rate. Most economists averaged the two figures to get a growth rate of about 1.2% for the first half of this year.

There was some sign of splits in the Fed’s decision-making ranks. Rate-setters Christopher Waller and Michelle Bowman voted to cut borrowing costs. But nine Fed officials, including Mr Powell, opted to hold.

It is the first time in more than 30 years that two of the seven rate-setters have dissented. One official, Adriana Kugler, was absent and didn’t vote.

Some of the disagreement likely reflects jockeying to replace Mr Powell, whose term ends in May next year. Mr Waller has been tipped as a potential future Fed chair.

Ms Bowman, meanwhile, last dissented in September last year when the Fed cut its key rate by half a point. She said her preference was for a quarter point cut instead and cited the fact inflation was still above 2.5% as a reason to be cautious.

Mr Waller said earlier this month that he was in favour of cutting rates, but for very different reasons to those Mr Trump has pointed to.

Instead, Mr Waller believes growth and hiring are slowing and that the Fed should reduce borrowing costs to forestall a weaker economy as well as a rise in unemployment.