Despite GDP data showing overall economic growth, the core private sector demand, driven by consumers and businesses, "slowed for the third consecutive quarter," Tim Quinlan and Shannon Grein, economists at Wells Fargo Economics, said in an analysis.
WASHINGTON, July 31 (Xinhua) -- The U.S. Federal Reserve has kept its benchmark interest rate unchanged at 4.25 percent to 4.5 percent despite pressure from the White House to loosen monetary policy.
The decision, announced Wednesday, reflects the Federal Reserve's "wait-and-see" approach as it monitors the impact of U.S. President Donald Trump's sweeping tariffs on inflation.
"Although swings in net exports continue to affect the data, recent indicators suggest that growth of economic activity moderated in the first half of the year," the Federal Open Market Committee said in a statement Wednesday. "The unemployment rate remains low, and labor market conditions remain solid. Inflation remains somewhat elevated."
While there are indications that the economy is booming, inflation -- which took hold during the previous administration -- remains above the Federal Reserve's long-term target of 2 percent.
While Wednesday's GDP report showed robust growth at 3 percent in the second quarter, the cost of food and shelter remains at record highs, continuing to strain household budgets. Some economists warn that cutting interest rates could further fuel inflation.
Still, some economists expect the Fed to lower interest rates later this year, though likely not to the extent the Trump administration is advocating.
Gary Hufbauer, nonresident senior fellow at the Peterson Institute for International Economics, told Xinhua: "I think a rate cut of 0.5 percent in September is very likely, because of a slowing economy. Business investment was very weak in the second quarter, and I don't expect a big rebound in the third quarter."
"Consumer spending held up in the second quarter, but I'm expecting a slowdown in the third quarter. Meanwhile, federal layoffs and deportations will take a toll," Hufbauer said.
"The likelihood of a recession is receding, for sure, but I'm still guessing that one will start in the fourth quarter," he said.
Despite GDP data showing overall economic growth, the core private sector demand, driven by consumers and businesses, "slowed for the third consecutive quarter," Tim Quinlan and Shannon Grein, economists at Wells Fargo Economics, said in an analysis.
Dean Baker, a senior economist at the Center for Economic and Policy Research, told Xinhua: "The core PCE (personal consumption expenditures) rose at almost a 3 percent annual rate in the first half, and with more tariffs hitting in the second half, it's hard to see that falling." Core PCE measures changes in the prices that consumers pay for goods and services, but strips out volatile food and energy.
"The Fed may decide to lower rates anyhow, but the reason would be weakness, not strength," Baker said.
All of this follows months of pressure from Trump on Fed Chair Jerome Powell to cut interest rates, though experts largely viewed it as unlikely that Powell would cave.
Brookings Institution Senior Fellow Darrell West told Xinhua: "Powell is not going to cut rates until the data on economic growth and jobs indicate that it is necessary ... Trump doesn't have much leverage other than announcing Powell's successor well in advance of the end of his term to encourage Fed officials to follow that person's lead."
The position of Fed chief is independent of the White House, according to experts like Clay Ramsay, senior research associate at the Center for International and Security Studies at Maryland, who told Xinhua: "Trump has little leverage over Powell ... Trump's efforts to denigrate Powell with the public are not working with Republicans."■
