The US Federal Reserve has decided to maintain interest rates at their current level, emphasising the importance of central bank independence. Chair Jerome Powell stressed that autonomy is crucial for the credibility and effectiveness of monetary policy.
The Fed announced that its key lending rate will remain between 3.5% and 3.75%, citing strong economic activity across the country. According to the central bank, the US economy “has been expanding at a solid pace,” showing resilience despite recent uncertainties.
President Donald Trump has repeatedly criticised Powell for not cutting rates more aggressively, arguing that lower rates would ease borrowing costs for businesses and households. The ongoing political pressure has intensified public scrutiny of the Fed’s decisions.
Adding to the tension, federal prosecutors have launched a criminal investigation into Powell’s Senate testimony regarding renovations to Federal Reserve properties. Powell, however, declined to comment directly on the investigation during his press conference.
He warned that any erosion of central bank independence could make it extremely difficult to restore trust in the institution. “Losing autonomy would first of all make it hard to maintain credibility,” he said, stressing his commitment to keeping the Fed free from political interference.
Powell has suggested that the investigation may be linked to President Trump’s dissatisfaction with the pace of interest rate cuts, highlighting the complex intersection of politics and monetary policy.
At his first press briefing since publicly condemning the Department of Justice probe, Powell reiterated the critical role of the Fed’s independence. He stated that central bank autonomy prevents monetary policy from being influenced for political gain.
“It’s an institutional framework that has served the public well. Elected officials should not directly control interest rate decisions,” Powell said. “Maintaining that separation is vital for long-term confidence in the Fed.”
Former Fed chairs have also criticised the DOJ investigation, describing it as an unprecedented challenge to the central bank’s autonomy. The comments underline the broad concern among economists about the potential implications for US monetary policy.
On the economic front, Powell pointed to stabilising employment indicators. While job creation remains modest, the unemployment rate has edged lower, suggesting the labour market is maintaining strength despite slower growth in some sectors.
Policymakers continue to monitor the effects of last year’s three interest rate reductions. Powell noted that tensions between inflation and employment have eased compared with previous months, but inflation remains above the Fed’s 2% target.
In response to these developments, the stock market showed volatility. The S&P 500 briefly exceeded 7,000 points ahead of Powell’s statements before closing largely unchanged, reflecting investor uncertainty over the Fed’s next moves.
Two Fed officials – Stephen Miran, on leave from the White House Council of Economic Advisers, and Trump appointee Christopher Waller – voted in favour of a rate cut. Nevertheless, the Fed cited improving economic data as justification for keeping rates steady for the time being.
Analysts, including Ellen Zentner of Morgan Stanley Wealth Management, noted that while the Fed’s pause may disappoint some, it still signals a potential path for rate reductions later in the year. “Investors need to remain patient. Lower rates may come, but the central bank is prioritising economic stability,” Zentner explained.
Looking ahead, attention is turning to Powell’s successor, who is set to take over in May. Trump’s influence over the appointment has raised questions about whether the next chair will act independently, with BlackRock executive Rick Rieder emerging as a leading candidate.
The Fed’s decisions and the surrounding political pressures underscore the delicate balance between economic policy and governance. Maintaining central bank independence will remain a central concern as the US navigates economic growth, inflation, and political scrutiny in the months ahead.
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