Fed Holds Rates, Flexes Its Independence — Markets Watch Closely
US Fed keeps interest rates steady. Powell defends central bank independence as markets react. Get the 5 crucial insights every investor must know
The U.S. Federal Reserve voted to keep interest rates steady, while its chairman, Jerome Powell, defended the importance of the central bank's independence.
The Fed said it would maintain its benchmark lending rate between 3.5% and 3.75%, stating that economic activity in the U.S. is "expanding at a solid pace."
U.S. President Donald Trump has frequently criticized Powell for not lowering rates more quickly. Federal prosecutors recently launched a criminal investigation into testimony Powell gave to the Senate regarding renovations to Fed buildings.
On Wednesday, Powell declined to comment on the investigation but said that if a central bank loses its independence, "it would be difficult to restore the institution's credibility."
Powell had previously suggested that he believed the federal investigation was initiated because of Trump's anger over the pace of interest rate cuts.
In his first press conference since the Department of Justice (DoJ) investigation was announced, he emphasized on Wednesday that central bank independence is crucial to ensuring that monetary policy is not used for political gain.
"It's simply an institutional arrangement that has served the public well—that directly elected officials don't have control over setting monetary policy," he said.
"If you lose that, first of all, it would be difficult to restore the institution's credibility," Powell said, adding that he is "firmly committed" to maintaining the Fed's independence.
Trump is expected to announce a replacement for Powell soon, as Powell's term as chairman expires in May.
Former heads of the U.S. central bank have also strongly criticized the DoJ investigation, calling it an attempt to undermine the Fed's autonomy.
Commenting on the decision to keep rates steady, Powell said: "The economy has once again surprised us with its strength." There are signs the job market is stabilizing – job creation is slowing but the unemployment rate has edged lower. Policymakers are monitoring the impact of last year's three interest rate cuts on the economy. Powell said: “There is still some tension between employment and inflation, but it is less than it was before.
“The outlook for economic activity has clearly improved since the last meeting.”
Concerns about a slowing job market in the second half of 2025 have overtaken fears of inflation. The goal of lowering interest rates is to stimulate the job market by reducing borrowing costs for companies.
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Nervousness about a deteriorating job market has eased in recent weeks, but inflation remains above the Fed’s 2% target.
The S&P 500 stock index fluctuated ahead of Powell’s remarks, briefly crossing the 7,000-point mark for the first time, but ultimately closed little changed.
Two Fed officials voted in favor of an interest rate cut – Stephen Miran, who is on leave from his position at the White House, where he heads Trump’s Council of Economic Advisers, and Christopher Waller, a Trump appointee whose name has been floated as a potential successor to Powell.
Despite these dissents, the Fed board pointed to strength in recent economic data, giving policymakers confidence to hold rates steady.
“The Fed’s song remains the same,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management. “Lower interest rates may be coming, but investors will have to be patient.”
She added, “While this Fed decision may not satisfy everyone, it keeps the door open for cuts later this year.”
Trump has publicly urged Powell to lower interest rates to reduce the U.S. government’s hefty borrowing costs and make it easier for Americans to obtain mortgages and other loans. He has also launched personal attacks on Powell — whom the president appointed as Fed chair during his first term in the White House — calling the central banker a "big loser" and an "idiot."
The president has also targeted Fed Governor Lisa Cook, whom he wants to remove. He has accused her of involvement in mortgage fraud, which she denies. The Supreme Court is now considering the case.
Last week, judges from both the left and the right expressed concerns about the central bank's independence and its impact on the broader economy.
Powell attended the Supreme Court hearing and on Wednesday called it "perhaps the most important legal case in the Fed's 113-year history." Another uncertainty facing the bank is who Trump will choose to replace Powell when his term expires.
Whoever takes the position will face credibility concerns, as Trump's pressure on the Fed has raised questions about whether the next chair will be able to act independently.
In recent days, BlackRock executive Rick Rieder has emerged as a leading candidate for the position.
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