Fed Holds Rates Steady Despite Trump’s Pressure for Cuts: “Economic Uncertainty Remains High” (Comprehensive)

Rate Freeze Follows Three Consecutive Cuts
Pro-Trump Board Members Push for Rate Reduction

AP Yonhap News

The US Federal Reserve (Fed) has decided to keep its benchmark interest rate unchanged, despite ongoing pressure from President Donald Trump to cut rates. This move is seen as a response to persistent inflation risks stemming from the Trump administration's tariff war, prompting the Fed to take a more cautious approach. However, board members aligned with Trump have advocated for a rate cut, leading to expectations that US interest rate policy could shift again depending on who is appointed as the next Fed Chair after Jerome Powell.

On January 28 (local time), the Fed announced at its first Federal Open Market Committee (FOMC) meeting of the year that it would maintain the US benchmark interest rate at 3.50-3.75%. This ends the streak of three consecutive rate cuts from September through December of last year. In its statement, the Fed explained the decision by saying, "Uncertainty about the economic outlook remains elevated," and added, "We are closely monitoring risks to both employment and price stability."

With this decision, the interest rate gap between South Korea (2.50%) and the US remains at 1.25 percentage points. The Bank of Korea also kept its benchmark rate at 2.50% for the fifth consecutive time during its Monetary Policy Board meeting on January 15.

Meanwhile, concerns have been raised that this rate freeze could lead to conflict between the Fed and the Trump administration. On January 27, President Trump openly pressured for a rate cut during an economic speech in Iowa, stating, "I will soon announce the successor to Chair Powell, and under the new chair, you will see rates come down significantly."

In fact, during this rate decision, two of the twelve voting members-Fed Governor Stephen Miran and Christopher Waller, both known to be pro-Trump-opposed the rate freeze and called for a 0.25 percentage point cut. Notably, Waller is one of the four candidates for the next Fed Chair. With Powell's term ending in May, the appointment of a new chair is expected to bring significant changes to US interest rate policy.

Market observers inside and outside the US anticipate that the Fed could resume rate cuts by the end of this year. Kay Haigh, Global Co-Head of Fixed Income and Liquidity Solutions at Goldman Sachs, told CNBC, "The Fed may pause rate hikes for now, but there is a high possibility they will resume in the second half of the year," adding, "If inflation eases, we expect the rate-cutting cycle to restart by year-end."