The Fed keeps borrowing costs high, despite Trump's push for cuts—here's why

As was widely expected, the Federal Reserve is holding interest rates steady, despite pressure from President Donald Trump to cut them.

Following a Federal Open Market Committee meeting Wednesday, the central bank announced that its benchmark interest rate will remain at a range of 4.25% to 4.5%. That means borrowing costs for credit cards, loans and auto financing will likely stay elevated until at least mid-September, when the FOMC meets again.

The Fed has kept interest rates near their highest levels in more than two decades over the past two years to curb inflation. Higher rates are meant to rein in spending and help bring inflation under control.

But with inflation creeping up last month to a year-over-year rate of 2.7% — above the Fed's 2% target — the central bank is holding rates steady, in line with Chair Jerome Powell's June pledge to "wait and learn more" about the impact of tariffs before making any policy changes.

In a challenge to the Fed's independence, Trump has spent months pressuring the central bank to lower rates. In July, he called for a cut of at least three percentage points, arguing that high borrowing costs are squeezing households and driving up the government's interest expenses.

Although the President has backed off his threat to fire Powell, he continues to criticize the central bank's stance. Trump posted on Truth Social Wednesday morning, saying, "MUST NOW LOWER THE RATE. No Inflation!"

White House officials have also taken aim at the Fed's $2.5 billion headquarters renovation project, citing it as a sign of fiscal mismanagement.

Powell previously said that he had no intention of resigning and would not if asked. A Fed spokesperson recently told Reuters that Powell intends to serve out his full term through May 2026.

While inflation remains a concern, the economy has continued to show strength, giving the Fed reason to keep rates steady, according to economists.

U.S. gross domestic product — the broadest measure of economic output — expanded at a 3% annualized pace in the second quarter, according to the latest estimate from the Bureau of Economic Analysis released Wednesday.

The labor market remains solid despite some signs of weakening, with the unemployment rate still near historic lows, per Federal Reserve data. Consumer spending is also holding up, a sign that demand remains resilient despite elevated borrowing costs, according to Commerce Department retail data.

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"Simply put, this Fed is very data dependent and the data simply doesn't warrant a rate cut," says Robert Johnson, professor of finance at Creighton University's Heider College of Business.

"Trump has said the economy is doing well — and I agree — but that is not a compelling argument for a rate cut. Rate cuts are generally appropriate when an economy is languishing and needs jumpstarting," he says. "The Fed is concerned that a rate cut could serve to accelerate inflation."

While a rate cut might not be needed now, investors still expect one later this year, with markets pricing in a roughly 60% chance of a 25-basis-point cut in September, as of Wednesday morning, according to CME's FedWatch tool.

That expectation hinges in part on economic uncertainty tied to tariffs, which could push prices higher, curb consumer spending and ultimately slow growth enough to justify a cut.

"The idea of a September rate cut is very much on the table," says Greg McBride, chief financial analyst at Bankrate. "But if the labor market hangs tough and we see evidence of tariffs influencing inflation, then September is going to come off the board."

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