Federal Reserve holds interest rates steady, experts weigh in
INDIANA -The Federal Reserve held interest rates steady on Wednesday.
Fed chair Jerome Powell spoke at a press conference on Wednesday in Washington, D.C.
"We see the current stance of monetary policy as appropriate to encourage progress toward both our maximum employment and 2% inflation goals, said Powell."
Michael Hicks, PhD, is a George and Frances Ball Distinguished Professor of Economics and the Director of the Center for Business and Economic Research.
He says the Fed is trying to balance its dual mandate, which is to keep both unemployment and inflation rates low.
While there have been interruptions in the data, Hicks says unemployment has ticked up over the last year by about half a percent, and inflation has gone up, too.
“The consequence of that is the Federal Reserve is going to really watch that inflation, putting more weight on that as an immediate effect. And I suspect that really speaks to a challenge for the next several months of the Federal Reserve holding interest rate cuts, at least until price increases slow way down, or labor markets really bottom out. And either one of those two things are possible in the 12 months ahead,” said Hicks.
Hicks says short-term, President Trump would like to lower interest rates, which could potentially make mortgages a bit lower, and reduce credit card bills in the short run. He says it might even create more spending on construction, as families rush to buy or build new homes.
“In the long run, and by that, I mean six to 12 months, they would really spark an inflationary spiral. So, if the President had control of the Federal Reserve, he would probably. Lower interest rates by, you know, a point or two or three points to get them back down really low, the pain would be felt after six, eight, ten, 12 months, which is after this next election,” said Hicks.
He says the Federal Reserve is following that dual mandate.
“Which is, ‘look, we're going to look at both interest rates and unemployment rates, and we're going to try to keep both of them low. We're going to make balances based on judgment of a dozen experienced voters on the Open Market Committee and the research of several hundred economists around the country who are not just running models, but they have extensive efforts to speak with people in every major area, to ask their feedback of businesses,” said Hicks.
Hicks says business sentiment around the country is that tariff prices are impacting manufacturing, prices will go up over the next year, and hiring is stalled.
“The Federal Reserve really wants to get ahead of price increases, because the worst-case scenario is high inflation and high unemployment. There's no way to fix that without a very deep recession, and so if we follow the President's advice, we're going to end up with high inflation, high unemployment. If we follow the independent fed, we'll probably see lower inflation in the year ahead and less labor market effects in the long run,” said Hicks.
As far as pressure on the Fed from the White House, Hicks said this:
“Most people don't realize that the if you're an elected official, if you're a president, it's natural to want the economy to really boom in the six months before you face an election, or your party faces an election, and that's particularly to presidents, because they face this midterm challenge, particularly in their second and final term. And so, this is going to be really tough for the President. If he had his way, he would do everything he could to juice the economy in the short run. And that's not something that's limited to Republicans. Anybody would do that for its electoral benefit,” said Hicks.
Andreas Hauskrech, PhD, is a professor of business, economics, and public policy at the Kelley School of Business at Indiana University in Bloomington.
He says it’s important that the Fed is governed by technocrats, mostly PhD economists and some lawyers.
He also says it’s important to understand the fed is not part of the executive branch and it has its own governance. Those technocrats study the data. Hauskrech says the data shows lowering interest rates sends the wrong signal right now, when there’s an uptick in inflation, and we have to look at how the labor market develops.
“At the moment, it would be a wrong signal for the Fed. And let me add this, if an executive branch is pushing the Fed and questioning the independence of the central bank, it's very likely, also historically, that the Fed will do exactly the opposite, and stressing its independence in policymaking and not following the pressure that comes from the executive branch. That is something that we have learned from history,” said Hauskrech.
He thinks it's likely that it doesn’t move on this at the next meeting, set to happen in mid-March.
Hauskrech also says professional economists are surprised at how relatively well the economy is doing, given how it's been treated the last 12 months.
“When I say treated, I mean we introduced a lot of uncertainty, and this uncertainty is holding back corporate investment, because corporations just don't know what to calculate with. Think about the constantly changing tariffs and tariff threats. But the economy has done in 2025 particularly in the last quarter, relatively well, surprisingly well. I think we have to consider here some special factors. And one special factor is enormous investment into AI, and this, this, we don't know exact numbers, but we are talking about round, about $400 billion only in AI investment of the big tech companies, and that has supported economic growth. So, the economy is doing relatively well,” said Hauskrech.