Stocks tumble as Fed hits pause on interest rates despite Trump pressure to cut

The Federal Reserve has held interest rates steady at its first meeting in the second presidential term of Donald Trump. 

The central bank held benchmark borrowing costs between 4.25 percent and 4.5 percent at the close of its two-day meeting on Wednesday. 

It comes after Trump said he wants the Fed to cut rates soon after he assumed the presidency last week.

The President said he would ‘demand that interest rates drop immediately.’ 

Fed Chair Jerome Powell said at a press conference following the rate announcement, however, that he had had ‘no contact’ with the President.

Stocks fell following the announcement, with the S&P 500 down 0.7 percent, the Dow Jones Industrial Average down 0.4 percent and the Nasdaq tumbling more than 1 percent. 

It comes days after Wall Street hemorrhaged $1 trillion on Monday after a Chinese artificial intelligence startup triggered fears America’s top tech stocks are overvalued.

The Fed also warned about inflation in its post-meeting statement, removing a key reference from its December statement which said that inflation ‘has made progress’ toward its 2 percent goal.

Instead, the statement said: ‘Inflation remains somewhat elevated.’

Consumer prices were up 2.9 percent from a year earlier in December, which was the largest monthly increase in nine months. 

Investors had largely expected that the Fed would hold interest rates steady at the first meeting of the year. 

But Wednesday’s decision still marks a change in direction for the central bank, which made three consecutive rate reductions at the end of 2024.  

Now, investors will be watching closely as to any clues as to whether it may cut rates later this year. 

‘The market is already jumping on the omission of inflation progress from the FOMC statement as a hawkish signal,’ Seema Shah, chief global strategist of Principal Asset Management, told CNBC.  

‘Certainly, the plateauing in inflation improvement means that a rate cut is currently not a desperate requirement, so a pause makes sense.’ 

While the Fed gave a slightly less optimistic view on inflation, it offered a somewhat more optimistic view on the labor market, saying ‘conditions remain solid.’

‘We do not need to be in a hurry to adjust our policy stance,’ Powell said at the press conference. 

He rejected questions about pressure from Trump, saying he had not had contact with the President. 

‘We are keeping our heads down and doing our work and that’s how we best serve the public,’ he stressed. 

Trump has repeatedly voiced his frustrations with Powell over the years, and even threatened to remove him from his role as Fed Chair – an unprecedented move for any president.

During the election campaign, Trump insisted he should have a ‘say’ in the Fed’s interest rate policies as president. 

At the conclusion of the Fed’s interest rate meeting in November, Powell explicitly said he would not resign from his role if asked to do so by Trump. 

He said it was ‘not permitted under the law’ for a president to fire or demote a Fed Chair.  

Powell, a Republican with a background in private equity, was originally appointed to lead the Fed by Trump during his first presidential term. 

Joe Biden later reappointed him for a second term. 

During Trump’s first term, the pair clashed repeatedly, and the President even openly considered replacing Powell in 2018. 

Trump has taken issue with what he considers the Fed’s lack of transparency, criticizing its private policy meetings and the delayed release of discussion notes.

The Fed’s latest decision comes days after the stock market plunged on Monday amid a tech sell-off, with chipmaker Nvidia losing $465 billion in market value – the biggest single-day drop ever.

The panic was driven by Chinese AI startup DeepSeek, which showcased a chatbot it claims rivals leading versions from OpenAI and Google, but at a fraction of the cost. 

Stocks rebounded slightly on Tuesday, and Nvidia gained as much as 6 percent in afternoon trading.