Federal Reserve moves to keep interest rates steady during its June meeting: CEI analysis

The Fed has decided to keep interest rates where they are, signaling the focus is still on economic uncertainty and asserting its independence from the federal government.

CEI Senior Economist Ryan Young:

“Kevin Warsh’s first meeting ended with a unanimous vote to hold interest rates steady. The last several meetings had multiple dissents, which are typically rare. Behind the scenes, this show of unity could be a signal of the Fed asserting its independence from the president.

“President Trump has long been pushing for lower interest rates. This could stimulate the economy ahead of the midterm elections, but the Fed is unwilling to do that because lower interest rates risk higher inflation. Inflation is now over 4 percent, or more than double the Fed’s 2 percent target.

“The Fed is also reluctant to raise interest rates. This could fight inflation, but at the risk of slowing down an economy that is showing signs of trouble. So, hold steady it is.”

CEI Finance and Monetary Policy Analyst Steve Swedberg:

“The Fed leaving interest rates unchanged reflects continued uncertainty over inflation and the economic outlook. While the decision was widely expected, the larger challenge facing the Fed is maintaining confidence that future policy decisions will be guided by economic conditions.

“In recent months, attention has focused on President Trump’s repeated calls for lower interest rates. But political pressure is only one challenge confronting the Fed’s independence. Rising federal debt and debates over the proper relationship between the Treasury and the Fed all create incentives for monetary policy to serve objectives beyond price stability.

“For Fed Chair Kevin Warsh, credibility will depend on demonstrating a consistent commitment to data-driven policymaking. Markets can more easily adapt to higher or lower interest rates. What they have difficulty adapting to is uncertainty about the principles guiding monetary policy.

“That is why policymakers should place greater emphasis on a rules-based monetary framework. Clear policy guidelines can help insulate monetary decisions from political demands and shifting market sentiment, thereby strengthening the Fed’s independence and long-term credibility.”