Here's really why the Fed isn't raising interest rates

This week, the Federal Reserve Bank decided not to lower or raise interest rates, a decision that sparked the ire of President Donald Trump. However, an expert told Audacy that the move might be a good sign.

“I think we’ll see interest rates come down this year, I just think it's going to come down for the reason we don’t want, said Greg McBride, chief financial analyst for Bankrate, who added that: “We want interest rates to come because inflation pressures are easing. We don’t want interest rates that come down because the economy is weakening.”

McBride spoke to WWL’s Tommy Tucker about the Fed’s decision.

In its Wednesday statement, the Fed said that “swings in net exports have affected the data,” it uses to determine interest rates. These rates make it more expensive for people in the U.S. to borrow money when they go up, and the Fed raised them several times in an effort to cool inflation as it reached a peak over 9% in the wake of the COVID-19 pandemic. Late last year, it lowered rates three times, per Forbes.

“Recent indicators suggest that economic activity has continued to expand at a solid pace,” said the Federal Open Market Committee statement. “The unemployment rate has stabilized at a low level in recent months, and labor market conditions remain solid. Inflation remains somewhat elevated.”

It added that it still seeks to achieve maximum employment and inflation at the rate of 2%. Furthermore, the FOMC statement noted that there is uncertainty about the economic outlook, bolstering its decision to keep its rates at 4-1/4 to 4-1/2%.

President Donald Trump’s tariffs on foreign trading partners have contributed to some economic anxiety and uncertainty over the past few months. For example, Audacy reported this week that Mattel announced it might raise prices due to the tariffs and that it paused guidance for this year due to the “volatile macro-economic environment.”

“When you introduce prospect of widespread tariffs that are effectively a tax on the end user… that’s going to further stretch household budget,” McBride explained.

Trump criticized the Fed and its Chairman Jerome Powell in a Thursday Truth Social post.

“‘Too Late’ Jerome Powell is a FOOL, who doesn’t have a clue. Other than that, I like him very much! Oil and Energy way down, almost all costs (groceries and ‘eggs’) down, virtually NO INFLATION, Tariff Money Pouring Into the U.S. – THE EXACT OPPOSITE OF ‘TOO LATE!’ ENJOY!” said the president.

McBride, however, noted that interest rates aren’t going down in part because the economy is actually doing well, despite pressure and uncertainty. Energy prices might be down, but he said that is in the expectation the global economy will soon start to slow.

“You know, we’ve seen consumer and business sentiment just completely fall off the table, but when you look at metrics like consumer spending or unemployment, well, you get a different picture,” McBride told Tucker. “Things are still hanging in there quite nicely.”

That could change by the end of the year, but McBride said there just aren’t any indicators right now that rates should come down. Things that might signal a time to cut rates include deterioration in the labor market or a drop in consumer spending. As of right now, the economy is strong even though many consumer goods are at elevated prices.

Prices are still a lot higher than they were. They may not be going up as fast, but they’re still a lot higher,” McBride said. Households have been feeling the strain for years.

So, why does Trump want lower rates?

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“Lower interest rates are favored by investors and a lot of politicians because it helps juice the economy,” said McBride. For the reasons he mentioned, he thinks now doesn’t seem like a good time to juice the economy. “We’ve got inflation still higher than it should be and there’s prospect it could go even higher,” he explained.

Trump has indicated that he would replace Powell, but the Federal Reserve Bank is an independent entity from the government. The chair’s term is up next year.

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