The Fed holds interest rates steady despite unprecedented pressure from Trump

The Federal Reserve decided Wednesday to keep interest rates steady. The decision followed three consecutive rate cuts in 2025, with the Fed cutting rates by 25 basis points at its September meeting, again at its October meeting, and one more time at its December meeting. Inflation has held relatively steady in recent weeks, even appearing to trend down, while labor market numbers have also come in within targets that officials widely regard as acceptable.

Prediction markets, as well as traders and analysts, widely expected Wednesday’s pause. Yet it came even as White House pressure on the Fed has reached into unprecedented territory that, Fed Chair Jerome Powell himself has said, “should be seen in the broader context of the administration's threats and ongoing pressure.”

Here's what to know.

Powell describes political intimidation

On Jan. 11, Powell went on record to explain that a Department of Justice criminal probe, ostensibly about his Congressional testimony regarding renovations to Federal Reserve buildings, is instead about his refusal to contravene the political independence of the Fed. “This is about whether the Fed will be able to continue to set interest rates based on evidence and economic conditions—or whether instead monetary policy will be directed by political pressure or intimidation,” he said.

“I have served at the Federal Reserve under four administrations, Republicans and Democrats alike,” Powell went on. “In every case, I have carried out my duties without political fear or favor, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats. I will continue to do the job the Senate confirmed me to do, with integrity and a commitment to serving the American people.”

President Donald Trump has publicly attacked the Fed for not cutting rates more aggressively and has repeatedly threatened officials who resist his policy preferences. That includes an attempted firing of Fed governor Lisa D. Cook “for cause,” and follows recent Supreme Court debate about whether the president should be permitted to do so.

The Supreme Court arguments

During discussions last week, the usually administration-aligned Supreme Court justices appeared to signal serious concerns about the need to protect the Fed’s independence, the New York Times reported.

Although the case centers on Cook’s attempted removal over alleged mortgage fraud, the hearing quickly expanded into a referendum on how insulated the Federal Reserve should be from presidential pressure. Across ideological lines, justices repeatedly suggested that allowing such firings could undermine public confidence in the central bank, destabilize markets, and raise the risk of economic recession. They examined materials provided to the court and signed by every living former Fed chair, all of whom stand in support of the Fed’s independence and have expressed confidence in Powell.

Justice Amy Coney Barrett and Justice Sonia Sotomayor noted that judges should not discount economic risk simply because it’s difficult to quantify. Justice Brett Kavanaugh framed the issue in historical terms, warning that expanding presidential power over the Fed could be abused by future administrations and “shatter” the institution’s independence.

The Trump administration argued the opposite — that keeping Cook in office harms public trust in the Fed and that markets had already weathered her attempted removal without disruption (a point that other experts regard as debatable). These arguments appeared to draw skepticism from several justices, who pressed government lawyers to explain why independence exists at all if the president can define “cause” unilaterally, the Times reported. Meanwhile, in December, ProPublica reported that Trump himself is guilty of the kind of mortgage fraud which he has accused Cook of committing.

Wednesday’s decision to hold rates steady, likely to draw ire from Trump, would suggest the Fed’s independence remains intact, at least for now.

Details of Powell's Wednesday press conference

The mood at the press conference was, against all odds, somewhat light-hearted. Reporters asked Powell about the DOJ probe, knowing he would not discuss it beyond referring them to his initial statement, and yet they volleyed the questions anyway.

Powell explained the decision to hold rates steady, acknowledging some members of the committee favored a cut, by saying that inflation — aside from price increases caused by tariffs — is either steady or trending down, and that the labor market is showing signs of increasing health.