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Donald Trump takes aim at US Fed as import drop lifts economy Fed holds interest rates steady despite Trump pressure
(about 3 hours later)
A sharp drop in imports triggered by President Donald Trump's tariff policy helped boost US economic growth between April and June, according to the latest figures. The US central bank has kept interest rates unchanged again, despite pressure from President Donald Trump to lower borrowing costs.
The world's largest economy expanded at an annual pace of 3% after shrinking in the first three months of the year, the Commerce Department said. The decision, which was widely expected, left the Federal Reserve's key lending rate between 4.25% and 4.5%, where it has stood since December.
The bigger-than-expected rebound reflected swings in trade after businesses rushed to get goods into the US ahead of Trump's taxes and is not necessarily an indication of the health of the wider economy. But in an unusual dissent, two members of the board voted against the plan, saying they preferred to cut, which is a sign that support for lower rates may be broadening.
Nevertheless, the US president used the data to take aim at Jerome Powell, chair of America's central bank, ahead of a decision on interest rates later on Wednesday. The vote came as new economic data continued to fuel debate over what effects Trump's tariffs will have on the world's largest economy.
Using his "Mr Too Late" nickname for Federal Reserve chair Powell, Trump wrote on social media that the economic figure was "WAY BETTER THAN EXPECTED! 'Too Late' MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!". The latest figures showed the US economy grew at an annual rate of 3% over the April-June period, after shrinking in the first three months of the year, the Commerce Department said.
But the bigger-than-expected rebound was driven primarily by a sharp drop in imports as Trump's tariffs kicked in.
The US Fed typically lowers interest rates when the economy is struggling and raises them if inflation, which measures the pace of price growth, rises too quickly.
The bank has been hesitant to act one way or another this year, saying it wants to see how tariffs and other new policies, including tax cuts, will affect the economy.
Recent data showed that the rate of inflation eased to 2.1% in the three months to June, from 3.7% between January and March.
Some analysts said the rebound in economic growth between April and June was likely to bolster arguments that the bank can afford to wait.
Bernard Yaros, lead US economist at Oxford Economics, said: "The economy's resilience will allow the Federal Reserve to hold still and assess the unfolding tariff impact on consumer prices before pivoting to interest rates cuts in December."
Many of the details of the Wednesday's report were consistent with an economy that is cooling but not in serious distress.
Consumer spending increased 1.4%, up from 0.5% between January and March but it represented much slower growth than last year.
Business investment eased and federal spending also dropped as areas outside of defence cut back.
A separate gauge that tracks consumer spending and investment slowed from 1.9% to 1.2%, the Commerce Department said.
Some economists have argued that this measure is a more helpful indicator, given the fluctuations in trade.
"Forget about the headline number," Jim Thorne, chief market strategist for Wellington-Altus Private Wealth told the BBC's Opening Bell. "The underlying data is suggesting an economy that is losing momentum.""Forget about the headline number," Jim Thorne, chief market strategist for Wellington-Altus Private Wealth told the BBC's Opening Bell. "The underlying data is suggesting an economy that is losing momentum."
Though he added: "The good news is that price pressures are starting to alleviate." The Fed typically lowers interest rates when the economy is struggling and raises them if the pace of price rises starts increasing too quickly.
Policymakers at the Fed have long indicated that they expected to lower borrowing costs at some point this year, following in the footsteps of other central banks, including in the UK, which have cut interest rates.
But they have held off far longer than once anticipated, worried about how tariffs and other new policies, including tax cuts, will affect the economy.
Inflation, the pace of price increases, also remains above the Fed's 2% target, ticking up to 2.7% in June.
Federal Reserve chair Jerome Powell has argued that moving cautiously makes sense at a time when the job market remains stable and tariffs are widely expected to drive up inflation.
The rebound in economic growth between April and June could bolster those arguments, some analysts said.
But there are risks to delay, since tariffs often slow growth, hitting sales and investment.
Andrew Hollenhorst, chief US economist at Citi, said policymakers would be looking closely for signs of damage to the job market, where the unemployment rate remains low at 4.1% but hiring has weakened.
"The danger of waiting is, you wait too long and the cracks you're seeing in the labour market actually become more concerning," he said.
Trump has dismissed concerns that his tariffs might drive up prices or weigh on growth.
He has also attacked the Fed for moving too slowly to lower borrowing costs, focusing his argument on the way lower interest rates would save the government money on debt payments and boost the housing market.
On Wednesday, after the Commerce Department's report on gross domestic product (GDP), he repeated his call for lower rates, addressing Fed chairman Jerome Powell, whom he has nicknamed Mr Too Late.
"WAY BETTER THAN EXPECTED!" he wrote on social media. "'Too Late' MUST NOW LOWER THE RATE. No Inflation! Let people buy, and refinance, their homes!"
In his push for rate cuts, Trump has toyed with the idea of firing Powell, though he has said most recently that he did not think such a step - a major break with precedent - would be necessary.
"It may be a little too late as the expression goes, but I believe he's going to do the right thing," he told reporters last week after touring a Fed construction project the White House has accused Powell of mismanaging.