The U.S. central bank held interest rates steady on Wednesday and Federal Reserve Chair Jerome Powell's comments after the decision undercut confidence that borrowing costs would begin to fall in September, possibly stoking the ire of President Donald Trump who has demanded immediate and steep rate relief.

Powell said the Fed is focused on controlling inflation - not on government borrowing or home mortgage costs that Trump wants lowered - and added that the risk of rising price pressures from the administration's trade and other policies remains too high for the central bank to begin loosening its "modestly restrictive" grip on the economy until more information is collected.

While there will be two full months of data before the Fed's September 16-17 meeting, Powell said the central bank was still in the early stages of understanding how Trump's rewrite of import taxes and other policy changes will unfold in terms of inflation, jobs and economic growth.

"You have to think of this as still quite early days," Powell said in a press conference after the release of the Fed's latest policy statement, opens new tab. "There's quite a lot of data coming in before the next meeting. Will it be dispositive? ... It is really hard to say."

Those comments, and others that placed the burden on upcoming data to convince policymakers that lower rates were warranted, led investors to reduce the probability of a rate cut in September to less than 50%, after entering this week's two-day Fed meeting at nearly 70%. Treasury yields rose while the S&P 500 (.SPX), opens new tab and Dow Jones Industrial Average (.DJI), opens new tab equities indexes closed marginally lower.

Powell "made clear that he thinks the Fed has room to hold the fed funds rate steady for a period of time and wait and see how much tariffs affect inflation," said Bill Adams, chief economist at Comerica Bank, projecting that the central bank won't cut rates until its last meeting of the year in December.

"If the unemployment rate holds steady and tariffs push up inflation, it will be hard to justify a rate cut in the next few months."

The latest policy decision was made by a 9-2 vote, what passes for a split outcome at the consensus-driven central bank, with two Fed governors dissenting for the first time in more than 30 years.

Trump has given Powell the pejorative nickname "Too Late" for his refusal to cut rates, but the Fed chief on Wednesday said his hope was to be right on time when the decision is made to lower borrowing costs, neither moving so soon that inflation reemerges, or waiting so long that the job market slides and the unemployment rate rises. Indeed, Powell said the fact that the Fed isn't discussing rate hikes could be seen as a willingness to overlook some of the expected impact of tariffs.

"If you move too soon, you wind up not getting inflation all the way fixed ... That's inefficient," Powell told reporters. "If you move too late, you might do unnecessary damage to the labor market ... In the end, there should be no doubt that we will do what we need to do to keep inflation controlled. Ideally, we do it efficiently."

The data since the Fed's June 17-18 meeting has given policymakers little reason to shift from the "wait-and-see" approach they have taken on interest rates since Trump's January 20 inauguration raised the possibility that new import tariffs and other policy shifts could put upward pressure on prices.

U.S. President Donald Trump looks on as Jerome Powell, his nominee at the time to lead the U.S. Federal Reserve, moves to the podium at the White House in Washington, U.S., November 2, 2017.

Inflation is about half a percentage point above the Fed's 2% target and has shown signs of increasing as prices of some heavily imported goods begin to rise, a process Powell said is expected to continue. As of June, Fed policymakers at the median expected inflation to rise further and end the year at about 3%.

New inflation data for June will be released on Thursday, and a key jobs report for the month of July will follow on Friday, part of the data Powell said policymakers will evaluate as they debate a possible rate cut in September.

Earlier on Wednesday, the U.S. government reported that economic growth rebounded more than expected in the second quarter, but declining imports accounted for the bulk of the improvement and domestic demand rose at its slowest pace in 2-1/2 years.

A line chart showing the benchmark interest rate set by the Federal Open Market Committee

'THOUGHTFULLY ARGUED'

Along with Powell's comments, the Fed's new policy statement also gave little hint that rates were likely to fall soon, particularly with an unemployment rate that has stabilized around 4% as weaker hiring trends are offset by slowing growth in the labor force due to Trump's immigration policies.

"The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated," the central bank said after voting to keep its benchmark overnight interest rate steady in the 4.25%-4.50% range for the fifth consecutive meeting.

The two dissents came from Fed Vice Chair for Supervision Michelle Bowman and Governor Christopher Waller, who has been mentioned as a possible nominee to replace Powell when the Fed chief's term expires next May. Bowman and Waller, both appointed to the board by Trump, "preferred to lower the target range for the federal funds rate by one quarter of a percentage point at this meeting," the Fed's policy statement said.

Powell characterized their opposition to the policy decision as part of a debate that was "argued, very thoughtfully ... all around the table," but with a majority of policymakers still reluctant to cut rates without more inflation data in hand.

A bipartisan figure who was appointed to the Fed's board by former President Barack Obama and later promoted to the top job by Trump, Powell voted to hold rates steady, as did three other governors and the five Fed regional bank presidents who currently hold a vote on the FOMC. The Fed's regional bank presidents are hired by local boards of directors who oversee the Fed's 12 regional institutions.

Governor Adriana Kugler was absent and did not vote.

Dissenting members of the FOMC often release statements explaining their vote on the Friday following Fed meetings.

Source: Reuters

The U.S. private sector unexpectedly lost 33,000 jobs in June, a big miss compared to the forecast for a 95,000 gain. That’s the first drop since March 2023, and to make things worse, May’s figure was revised down to 29,000 from 37,000.

Most of the weakness came from services, with professional and business services down 56,000 and education and health services shedding 52,000. Still, there were a few bright spots: manufacturing, construction, and leisure and hospitality all added jobs.

Key points from the release:

ADP’s Chief Economist, Nela Richardson, noted that “though layoffs continue to be rare, a hesitancy to hire and a reluctance to replace departing workers led to job losses last month.”

Market Reactions

Overlay of USD vs. Major Currencies Chart by TradingView

The U.S. dollar had been cruising higher earlier in the session, likely from some profit-taking ahead of Thursday’s jobs report. But that momentum hit a wall when the ADP numbers came in way below expectations.

The dip didn’t last long, though. USD/JPY and USD/CHF picked up right where they left off after a quick breather, and EUR/USD crept up toward the 1.1700 mark.

The muted dollar reaction may have been caused by two things. One, ADP has a spotty track record predicting the official NFPs, so traders aren’t exactly scrambling to reposition just yet. And two, even with the ugly headline number, wage growth held steady at 4.4%, which signals the labor market isn’t falling apart just yet.

With the Fed still on pause and watching how tariffs ripple through inflation, rate cut expectations later in 2025 are keeping a lid on any serious dollar strength for now.

Source: BabyPips

President Donald Trump’s unexpected visit to the Federal Reserve (FED) headquarters has hinted at a possible shift in the US interest rate policy. During his tour of the central bank’s renovation site with FED Chair Jerome Powell, Trump criticized the rising cost of the project but made it clear that his main concern remains the central bank’s reluctance to lower rates.

Trump Presses FED Chair Powell For Rate Cut

On Friday Trump told reporters that he had a productive meeting with Powell, leaving the impression that the FED may be open to cutting rates. According to a Bloomberg report, President Trump and Powell toured the FED’s headquarters renovation project in Washington on July 24, discussing the escalating costs and, more importantly, the direction of US rate cut policy.

Although Trump voiced concern over the estimated $25 billion renovation price tag, calling it excessive, he used the visit to reiterate his demand for immediate rate cuts, stressing that lower interest rates are essential for economic growth. Despite months of publicly criticizing the FED Chair, Trump’s face-to-face meeting with him ended without the political drama many had anticipated.

Instead, the rare visit seemed to ease the long-simmering tensions between the two figures, though Trump made clear his expectations of a rate cut remain high. The US President also suggested that he is not currently planning to fire Powell, regardless of ongoing frustrations over interest rates and a controversial renovation project that has drawn scrutiny from the administration.

Though Powell’s term as Chair ends in May 2026, there’s no indication he plans to step down early. Meanwhile, Trump continues to press for lower rates, stating, “I just want to see one thing happen—interest rates have come down.” He has framed monetary policy as a top concern for his administration moving forward, signaling that pressure on the FED to lower rates is unlikely to quiet down soon.

Trump Repeats Rate Demands With UK Leader

Following his recent high-profile visit to the Federal Reserve, Trump escalated his campaign for lower interest rates during a closed-door session with United Kingdom (UK) Prime Minister Keir Starmer. In a pointed critique of Powell, Trump told Starmer and assembled global leaders that US rates must be cut to 1%, describing it as both an economic necessity and a personal frustration with the FED Chair’s leadership.

He emphasized the potential financial impacts of reduced rates, stating that they should be at least 3% points lower than they are now. He claimed this difference amounts to nearly $1 trillion in potential savings for the US economy, estimating that each percentage point equals approximately $360 billion in reduced costs. By raising this issue in a diplomatic setting, the US President signaled his willingness to challenge central bank policy on a global stage.

Source: CoinGecko

President Donald Trump said he would impose a 25% levy on Indian goods starting Friday and threatened an additional penalty over the country’s energy purchases from Russia. That’s a steeper hit than the 15% to 20% range applied on several regional peers.India’s stock benchmark has lagged most major global peers this year amid concerns over a slowdown in its economy and corporate earnings. The underperformance has deepened this month as foreign investors have accelerated their withdrawals, turning attention to cheaper or more attractive markets like Hong Kong and South Korea. The value of India’s stock market is down $248 billion since reaching a record on July 2.

“India is known to be a tough negotiator when it comes to trade, and this time the toughness seems to have effected an undesirable outcome,” said Tomo Kinoshita, global market strategist at Invesco Asset Management. “The 25% tariff should have a moderate negative impact on India’s stock market, especially for export sector stocks.”The MSCI India Index is on track for its weakest month since February. While it has eked out a gain this year, its performance trails the almost 14% jump in MSCI Asia Pacific Index and pales in comparison to the 36% surge in the MSCI Korea Index, which has rallied on optimism surrounding bold reforms under a new president.

Futures contracts on the local benchmark NSE Nifty 50 Index dropped 0.6% after Trump’s announcement while the iShares MSCI India ETF slid 1.5%. The situation remains fluid, as the US president later said negotiations with India continue and whether or not a trade deal can be reached will be known “at this end of this week.”India’s once-lauded relative insulation from global turmoil is losing its shine. With earnings offering few positive surprises and valuations remaining among the highest in the region, investors are likely to stay cautious in the near term. The MSCI India trades at almost 22 times its one-year forward earnings, well above its long-term average and gauges of Chinese and Korean shares.

Even as stocks decline, India’s equity capital market is humming. Fundraising from initial public offerings, share placements to large investors and block trades has topped $6 billion for a third straight month. That level of issuance — last seen in late 2024 — coincided with a double-digit correction in local shares.“High valuations and slowing profits are inverting buyer-seller incentives,” said Prateek Parekh, a strategist with Nuvama Institutional Equities. Business founders and private equity investors are on a “selling spree,” while domestic flows are slowing. “Foreign fund flows are now critical.”

That boost will be key, as foreign investors — who have withdrawn more than $2 billion from local shares this month — weigh whether earnings can justify the rich valuations. The April-June results season so far has done little to ease concerns. Earnings from key technology and financial firms, the two sectors that together make up about 40% of the market’s value, have largely underwhelmed.Yet some believe the tide could still turn. Interest-rate cuts and a pick-up in economic growth could end the “flat-to-weak” positioning of local stocks and lay the foundation for an earnings rebound in the second half of the year through March, according to Emkay Global Financial Services’ strategist Seshadri Sen.

Rahul Chadha, founder and chief investment officer at New York-based Shikhara Investment Management LP. Chadha, said his fund has raised exposure to Korean stocks in recent months due to benefits including improved corporate governance.“Honestly, 2025 looks challenging for India to close the performance gap,” he added.

Source: Bloomberg Europe

The Federal Reserve's decision to avoid signaling imminent rate cuts despite relentless political pressure underscores its prevailing caution and has forced investors to dial back expectations for an easing at the next policy meeting.

The Federal Open Market Committee held interest rates on Wednesday in a split decision that gave little indication of when borrowing costs might be lowered. It also drew dissent from two Fed governors, both appointees of President Donald Trump who agree with him that monetary policy is too tight.

The overnight policy rate controlled by the Fed remains in a 4.25%-4.50% range. The last rate cut was in December and the Fed hiked rates from March 2022 to July 2023 to fight inflation.The lack of a clear signal that the Fed was warming to interest rate cuts as soon as the next meeting in September lifted Treasury yields and the dollar in late trade and turned stocks lower."I think the Fed has pushed out the probability of a rate cut," Sonu Varghese, global macro strategist at Carson Group.

"They're going to wait for more data, but more data means more time, and more time means rates are going to remain restrictive for a few more months," Varghese said.Fed funds futures traders are pricing in a 46% probability of a rate cut by September, down from about 65% a day ago, according to the CME Group's FedWatch Tool. They are no longer pricing in two full 25 basis point cuts by year-end as they were in recent days.Fed Chair Jerome Powell was careful to keep his options open on monetary policy. "We have made no decisions about September," he said in a press conference. He also noted there was still time to take in a wide range of data before the central bank next met in mid-September.

"There was some possibility that (Powell) would softly signal that a September rate cut is the base case, and (that it) would only not happen if the data didn't play out in a way that's consistent with that," said David Seif, chief economist for Developed Markets at Nomura in New York."I'd say he did not do that at all."Bond yields climbed on Wednesday as Powell reiterated the economy was showing resilience despite interest rates remaining "modestly restrictive". Benchmark Treasury 10-year yields and two-year yields both rose by about two basis points after those remarks.

Investor positioning may have amplified the bond market reaction, said Jamie Patton, co-head of global rates at TCW."I think the market had gotten a bit ahead of itself thinking we already had enough data to justify a cut in September," said Patton, who remains bullish on short-term bonds due to expectations of imminent interest rate cuts.Powell has come under intense pressure from the White House to lower interest rates, with President Trump regularly berating him for being too slow to lower borrowing costs.Powell's reticence in guiding when the Fed may start cutting rates will leave investors to parse two more months' worth of inflation and employment data for the timing of policy easing, and put some pressure on small-cap stocks in the near term, investors said.

The Russell 2000 small-cap index, which had been outperforming the S&P 500 index on the day before Powell took the stage, finished the session down 0.47% against a 0.12% loss for the large-cap benchmark.For the dollar, which has come under intense selling pressure this year, the Fed's relatively hawkish message gave some support, lifting the currency to a two-month high against a basket of peers. The dollar index ended up 1%, leaving it down about 8% for the year."We still envision medium-term weakness for the USD, but in the near-term the risk profile is more two-way," BofA Global Research strategists said in a note.

Higher rates in the U.S. help boost the allure of the dollar relative to other developed market currencies."This patience from the Fed and strength of the U.S. economy coming through is putting a little bit of a pause to that dollar depreciation," Vishal Khanduja, head of broad markets fixed income at Morgan Stanley Investment Management, said.Khanduja, however, warned against reading too much into the market's reaction to the Fed meeting."Overall, I thought they did not change their stance at all," he said.Khanduja expects three to five cuts by the end of next year, though he sees the next two inflation releases as important."They're still going to be wait-and-see, still very convinced that inflation is going to be slightly higher in the next two prints," he said. "But they are still very convinced it's going to be a one-time bump."

Source: Reuters