Jerome Powell has warned Donald Trump against meddling with the Federal Reserve as the central bank once again defied pressure from the US president to lower interest rates.

The Fed chairman said the independence of central banks was “very important” and warned that political influence over decision-making would prompt abuse.

Mr Powell said: “Governments all over the advanced economy world have chosen to put a little bit of distance between direct political control of those decisions and the decision makers.

“If you were not to have that, there would be a great temptation, of course, to use interest rates to affect elections, for example.

“That’s something that we don’t want to do. I think that’s pretty widely understood. Certainly it is in Congress. I think it’s very important.”

It came as the Federal Open Market Committee (FOMC) defied the President’s calls to slash rates and voted to keep interest rates on hold at 4.5pc for the fifth time in a row.

Mr Trump has hit out repeatedly at Mr Powell for refusing to lower borrowing costs, calling him a “numbskull” and “Mr Too Late” for keeping interest rates high. He renewed calls for Mr Powell to cut rates hours before the announcement.

While the Fed defied the pressure, the board was split on the vote, with both Christopher Waller and Michelle Bowman dissenting to call for a 0.25 percentage point cut. It was the first time since 1993 that two members of the Board of Governors had voted against the chairman.

Mr Waller is reportedly in the running to replace Mr Powell as chairman after the Fed chief’s term expires in May next year.

The Fed’s decision came after official figures showed the US economy surged in the spring, with GDP rising by a stronger than expected 3pc on an annualised basis between April and June, up from a 0.5pc fall during the first three months of the year.

However, much of the jump was driven by a fall in imports related to tariffs and Mr Powell warned that underneath the big swings in the GDP data, US economic growth had more than halved.

Growth averaged 1.2pc across the first six months of the year, down from 2.5pc last year, Mr Powell said.

A slowing economy would usually prompt central banks to lower interest rates but the Fed said uncertainty remained “elevated” and Mr Powell downplayed prospects of an imminent rate cut.

Mr Trump had told reporters shortly before the Fed announcement that “I hear they’re going to do it in September.” However, Mr Powell said: “We have made no decisions about September. We don’t do that in advance.”

Stocks fell after the comments, with the S&P 500 dropping as much as 0.8pc following the press conference and the Nasdaq Composite index falling by 0.6pc on Wall Street.

The dollar rose by nearly 1pc against a basket of currencies.

Although Mr Trump has distanced himself from previous threats to sack Mr Powell, earlier this month he suggested he could oust him over the spiralling costs of the Federal Reserve’s $2.5bn renovation. The president visited the building last week to press the Fed chairman about the work.

The pair clashed over estimates of the cost of the renovation. However, asked on Wednesday about the incident Mr Powell said that Mr Trump’s trip was “a nice visit”.

The FOMC had been steadily cutting rates but stopped last December to see the full impact of Mr Trump’s sweeping trade tariffs, which are expected to drive up the cost of goods.

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The dollar is up more than 0.9pc since this morning, jumping markedly after the Fed announced that interest rates would not be cut.

It is now at its highest level since May and is on course to post its first month of gains this year.

Analysts noted the selloff in US assets - including Treasuries and the dollar - began in early April, when the US announced a trade war against its major allies.

Trade agreements struck with Japan last week and the EU over the weekend signalled the US was riding back from a worst case scenario, easing investor concerns.

Wall Street fell this evening in choppy trading as investors take stock of the interest rate decision.

The Dow Jones has dropped 0.6pc and the S&P 500 has lost 0.3pc. The Nasdaq is down 0.1pc.

Jerome Powell has said the independence of the Fed from the US government is “very important”, after he has been hit by repeated personal attacks from Donald Trump.

Asked if he was concerned about how the president’s pressure on the Fed could impact its independence going forward, Mr Powell said: “Governments all over the advanced economy world have chosen to put a little bit of distance between direct political control of those decisions and the decision makers. 

“If you were not to have that, there would be a great temptation, of course, to use interest rates to affect elections, for example. 

“That’s something that we don’t want to do. I think that’s pretty widely understood. Certainly it is in Congress. I think it’s very important.”

Jerome Powell has warned that there remains a high level of uncertainty around Donald Trump’s trade negotiations that affects the Fed’s ability to cut interest rates.

He said: “It’s been a very dynamic time for these trade negotiations and lots and lots of events in the intervening period. But we’re still a ways away from seeing where things settle down.

“There are many, many uncertainties left to resolve. So yes we are learning more and more. It doesn’t feel like we’re very close to the end of that process.”

It is inevitable that tariffs will drive up costs in America, according to the chairman of the Federal Reserve.

Jerome Powell said: “What we see now is basically the very beginnings of whatever the effects turn out to be on goods inflation.

“They may be less than people estimate, or more than people estimate. They’re not going to be zero.

“Consumers will pay some of this. Businesses will pay some of this. Retailers will pay some of this.”

Jerome Powell has said that it would be wrong for the Fed to worry about the cost of servicing US government debt when setting rates.

Donald Trump has complained that high interest rates are imposing an extra cost on the US government. In a note to Jerome Powell that he shared on social media, he said: “You have cost the USA a fortune and continue to do so.

“You should lower that rate by a lot. Hundreds of billions of dollars are being lost.”

But tonight Mr Powell said: “We don’t consider the fiscal needs of the federal government - no advanced economy’s central bank does that - and it wouldn’t be good either for our credibility or for the credibility of US fiscal policy.”

Jerome Powell has said tariffs will bring more consumer price rises in the coming months, although businesses may not be able to pass on as much of the costs as they want.

Mr Powell said: “I think you have to think of this as still quite early days.”

“It’s starting to show up in consumer prices. As you know in the June report, we expect to see more of that. 

“And we know from surveys that companies feel that they have every intention of putting this through the consumer but you know, the truth is they may not be able to, in many cases.”

Jerome Powell has said the Fed has “made no decisions about September” as speculation for a cut at the next meeting mounts following comments from Donald Trump.

The Fed chairman said: “In coming months, we’ll receive a good amount of data that will help inform our assessment of the balance of risks and the appropriate setting of the federal funds rate.”

However, he added: “We have made no decisions about September. We don’t do that in advance.

“We’ll be taking that information into consideration and all the other information we get as we make our decision at the September meeting.”

Markets are still pricing in a first rate cut in October and have reduced bets today on a September cut.

Seema Shah, a City analyst at Principal Asset Management, said: “Powell is confronting two dissents for the first time since 1993 and a President who is very unhappy with his policy decision. What’s more, the economic backdrop is so rife with uncertainty, his ability to defend his decision is becoming increasingly challenging.

“The two dissents were well-telegraphed but are certainly interesting in light of the continued robust economic data and strong earnings season, suggesting that at least two committee members may be willing to park their data dependency approach to the side.

“Furthermore, the slightly dovish statement suggests that Waller’s concerns of underlying labour market weakness may be gaining more traction amongst the committee.

Jerome Powell has said it is still too early to be able to understand the full impact of Mr Trump’s tariffs on inflation.

Mr Powell said: “Higher tariffs have begun to show through more clearly to prices of some goods, but their overall effects on economic activity and inflation remain to be seen.

“A reasonable base case is that the effects on inflation could be short lived, reflecting a one time shift in the price level, but it is also possible that the inflationary effects could instead be more persistent, and that is a risk to be assessed and managed.”

Fed chairman Jay Powell said that economic growth has more than halved compared to last year, despite today’s quarterly surge in GDP.

Mr Powell said: “Recent indicators suggest that growth of economic activity has moderated. GDP rose at a 1.2pc pace in the first half of this year, down from 2.5pc last year.

“Although the increase in the second quarter was stronger at 3pc, focusing on the first half of the year helps smooth through the volatility in the quarterly figures related to the unusual swings in net exports, the moderation in growth largely reflects a slowdown in consumer spending.”

Donald Trump’s trade war has pushed up both prices of some goods and people’s expectations of future inflation, the Fed chairman has warned.

Jerome Powell told reporters: “Services inflation has continued to ease while increased tariffs are pushing up prices in some categories of goods.

“Near-term measures of inflation expectations have moved up on balance over the course of this year on news about tariffs.

“Beyond the next year or so, however, most measures of longer-term expectations remain consistent with our 2pc inflation goal.”

The Fed has avoided ‘political capitulation’ and stood up for its independence, a wealth manager has said.

Isaac Stell, investment manager at Wealth Club said: “President Trump will, once again take umbrage at this latest decision.

“He had already demanded that the Fed ‘MUST NOW LOWER THE RATE’ ahead of the decision.

“Despite the sustained pressure, Jerome Powell and his deputies have once again defied the president’s wishes and chosen independence over political capitulation.”

US stocks are slightly higher in choppy trade this evening, after the Federal Reserve held rates steady, as was widely expected.

Stocks were modestly higher before the Fed statement as investors assessed the first reading of second-quarter economic growth, which was stronger than expected, but underlying details indicated an economy that was likely losing strength.

The Fed is sounding more dovish, a wealth manager has said.

Richard Carter, of Quilter Cheviot, said: “Eyes will now turn to September’s meeting given the slightly more dovish tones emanating from the Federal Reserve in the past month or so.

“Jerome Powell will not want to be seen to be appeasing Donald Trump and will want the Fed to maintain its independence.

“It is a difficult position for the Fed to be in and as such retreating into wait and see mode will be the favourable approach.

“But if inflation continues to remain under control and cracks begin to appear in the labour market, the Fed will need to be prepared to act quickly, yet continue to block out the noise from Donald Trump.”

Inflation “remains somewhat elevated” and the Fed “is strongly committed to ... returning inflation to its 2pc objective”, the US central bank has said.

The comments come despite Donald Trump claiming repeatedly to have solved inflation. Earlier today he claimed on social media that there was “No Inflation!”.

The Federal Reserve’s decision to hold interest rates steady tonight generated the largest number of dissenting votes by governors at the US central bank in just over three decades.

Christopher Waller and Michelle Bowman cast votes against the decision to hold the central bank’s benchmark overnight interest rate unchanged in the 4.25pc-4.50pc range, preferring instead to reduce it by a quarter of percentage point.

That marked the first time two members of the Washington-based Board of Governors formally dissented on a decision by the policy-setting Federal Open Market Committee (FOMC) since December 1993, according to data from the St Louis Fed.

Any level of formal opposition by Fed governors is relatively rare, and most FOMC dissenting votes stem from disagreements held by regional Fed bank presidents.

The last time a governor dissented was at the meeting last September, when Ms Bowman wanted a smaller rate cut than her colleagues favoured. The last time two regional Fed presidents voted against the FOMC consensus was in October 2019.

Dissenting votes on the FOMC are uncommon. Until Wednesday, no Fed meeting this year generated formal opposition, with only two dissents occurring in 2024 and none in 2023.

The latest dissents were not a surprise, as both Waller and Bowman had signalled ahead of the policy meeting their openness to easing rates. In a speech on July 17, Mr Waller justified his desire to lower short-term borrowing costs when he said “the economy is still growing, but its momentum has slowed significantly, and the risks to the FOMC’s employment mandate have increased.”

Ms Bowman, in remarks on June 23, brushed off worries that Donald Trump’s import tariffs would drive up inflation and said as long as inflation pressures remained contained, she believed then that “it was time to consider” lowering rates this July.

The Fed has rejected Donald Trump’s demand for a rate cut “now” and voted to keep borrowing costs steady.

It said: “The unemployment rate remains low, and labour market conditions remain solid. Inflation remains somewhat elevated.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2pc over the longer run. Uncertainty about the economic outlook remains elevated. The Committee is attentive to the risks to both sides of its dual mandate.

“In support of its goals, the Committee decided to maintain the target range for the federal funds rate at 4.25 to 4.5pc.”

Kevin Hassett, a key Trump advisor on the economy, has claimed that markets have been surprised by the Fed’s unwillingness to cut rates.

He told Fox News that the economic data means the economy is ready for a cut.

Keeping interest rates high is “hurting people” trying to buy houses, Donald Trump has said.

Speaking at a bill signing ceremony at the White House he acknowledged that the Fed “probably won’t” lower rates today. However, he added: “I hear they’re going to do it in September”.

US stock indexes are drifting on Wednesday as Wall Street waits to hear from the Federal Reserve at 7pm about what it will do with interest rates.

The S&P 500 is up by 0.2pc, the Dow Jones Industrial Average is up less than 0.1pc and the Nasdaq is up 0.4pc.

The bond market saw a bit more action, where Treasury yields rose after a report suggested the US economy’s growth was much stronger during the spring than economists expected. It grew at a 3pc annual rate, according to an advance estimate, a full percentage point more than forecast. But underlying trends beneath the surface may be more discouraging.

“Cutting through the noise of the swings in imports, the economy is still chugging along, but it is showing signs of sputtering,” said Brian Jacobsen, chief economist at Annex Wealth Management.

It reinforces the dilemma facing the Fed as officials prepare to vote on what to do with interest rates. They could lower rates, which would give a boost to the economy. That is what President Donald Trump has been angrily calling for. But lower rates could also give inflation more fuel when Mr Trump’s tariffs may be set to increase prices for US households.

Trump on Wednesday announced a 25pc tariff on imports coming from India, along with an additional tax because of India’s purchases of Russian oil, beginning on Aug 1. That is when stiff tariffs Mr Trump has proposed for many other countries are also scheduled to kick in, unless they reach trade deals that lower the rates.

The yield on the two-year US Treasury note rose to 3.89pc from 3.86pc late on Tuesday. It tends to closely follow expectations for what the Fed will do with its overnight interest rate.

The 10-year Treasury, which also takes into account longer-term expectations for the economy and inflation, rose to 4.36pc from 4.34pc.

Money markets are not pricing in a US interest rate until October, according to data from Bloomberg.

Currently, the markets are not fully pricing in a second cut by the end of the year, although there is a fair amount of support for a second cut in December.

While Donald Trump has suggested that today’s strong GDP data means the Fed should cut rates today, it may reinforce the Fed’s position that the economy is doing well enough for it to hold off making a cut.

The central bank is obliged to both keep prices stable and ensure maximum employment - its so-called dual mandate. If the economy is strong, the Fed is likely to be less worried about employment.

The US Federal Reserve will announce its interest rate decision at 7pm, on the same evening that two Wall Street heavy hitters announce their results.

Donald Trump has spent months demanding cuts to interest rates.

But, money markets are nearly certain that the Fed will maintain rates at the 4.25pc-4.50pc range tonight.

The US rate call will be swiftly followed by earnings from two of the Magnificent Seven stocks after the closing bell on Wall Street: Microsoft and Facebook owner Meta.

Joshua Mahoney, an analyst at Rostro, said: “Coming hot off the heels of strong TSMC and Alphabet earnings, traders will be watching closely for [capital expenditure] habits and chip demand figures to highlight the continuation of the AI story.

“None the less, for Meta and Microsoft, their performance will once again come down to the hum drum areas of advertising and cloud revenues.”

Ahead of this investors weighed data showed the US economy registered stronger than expected growth in the second quarter of the year.

Wall Street is up this evening after a better than expected figure for US GDP.

Markets are now waiting for the latest update from the US Fed at 7pm, when the central bank is expected to keep rates as they are.

The S&P 500 is up 0.2pc, the Nasdaq is up 0.5pc and the Dow Jones is up 0.1pc.

In London, the FTSE 100 closed flat, while the FTSE 250 dropped 0.1pc. Germany’s Dax added 0.2pc and France’s Cac 40 was up by less than 0.1pc. The pan-European Stoxx 600 closed virtually unchanged.

Mexican economic growth accelerated in the second quarter of the year despite the fallout from Donald Trump’s trade war, official data has shown.

Gross domestic product (GDP) grew 0.7pc from the first quarter, when it had expanded by 0.2pc, national statistics agency INEGI reported.

Year-on-year, GDP rose 1.2pc in the second quarter, it said in a preliminary estimate.

“Mexico’s economy is strong and solid,” President Claudia Sheinbaum said in response.

Latin America’s second-largest economy has - so far at least - confounded warnings that Trump’s global trade war risked tipping it into recession.

Another major test looms on Friday, when Trump has threatened to impose a 30pc import tariff on Mexican goods, accusing the country of not doing enough to curb drug smuggling.

The risk of a recession remains if Trump goes ahead with tariffs, said Gabriela Siller, an economist with the financial group Banco Base.

“It’s clear that Mexico is not in recession, but that doesn’t mean the economy is doing well,” she wrote on social media.

Better than expected economic growth in the US will help the Fed justify standing still on interest rates, a leading economist hsa said.

Bernard Yaros, lead US economist at Oxford Economics, said: “Beneath the topline figure, the economy is switching to a lower gear but not going in reverse.”

The economy’s resilience will allow the Fed to “hold still and assess the unfolding tariff impact on consumer prices before pivoting to interest rates cuts in December,” he added.

Canada’s central bank has held its key lending rate at 2.75pc, as the major US trading partner confronts economic uncertainty two days before Donald Trump’s latest tariff deadline.

Canada remains uniquely vulnerable to Mr Trump’s trade war, with the Canadian and US economies having grown increasingly intertwined in recent decades.

Mr Trump’s threat to hike tariffs to 35pc on certain goods if no new trade deal is reached by Friday could wreak further havoc across a Canadian economy already strained by US protectionism.

Canada was the first G7 country to begin cutting interest rates last year, following a series of hikes to tame pandemic-fuelled inflation.

But this afternoon the Bank of Canada continued its pause on cuts, warning the impact of Mr Trump’s policies remained unclear.

“While some elements of US trade policy have started to become more concrete in recent weeks, trade negotiations are fluid, threats of new sectoral tariffs continue, and US trade actions remain unpredictable,” the Bank of Canada said.

The US Treasury secretary has told an event in Washington that he believes the US Fed should show “a little bit of imagination” on interest rates.

But, in comments reported by Bloomberg, Scott Bessent said he does not expect a interest rate cut today. However, he noted that markets were predicting cuts for later this year.

Eurozone government bond yields have inched higher this afternoon, tracking a rise in US Treasury yields. It came after data showed the American economy rebounded in the second quarter.

Eyes are on the US Federal Reserve, which is expected to keep interest rates on hold later at 7pm (UK time), while investors continue to take stock of the European Union’s trade deal with the United States and a hefty fall in the euro this week.

German 10-year yields, which serve as the benchmark for the wider euro zone, rose to 2.709pc, up from 2.608pc at 1pm.

The US 10-year yields reached 4.372pc this afternoon from 4.330pc last night.

Adidas has warned over the risk that tariffs could lead to “mega inflation” in the US and hurt its sales.

The German sportswear maker said that it may have to hike prices in the United States, after reporting that tariffs would add around €200m (£173m) to costs in the second half of the year. Its manufacturing mostly takes place in Asian countries.

Shares in Adidas dropped 11pc in their worst day since Donald Trump unveiled higher tariffs in April, bringing the stock’s losses since the start of this year to 26pc.

On a call with analysts, chief exective Bjorn Gulden emphasised that the final tariff levels were still not known, but said he was concerned about the knock-on impact of higher prices on US consumer demand.

“What I’m mostly worried about, to be honest, is not only the cost but it’s what is going to be the consumer reaction in the market with all these price increases that I think will come not only in our sector, but in general in the US,” said Mr Gulden.

“Should we get mega inflation in the US, things will happen on the demand side, then of course volumes will go down.”

The dollar rose this afternoon after US economic growth rebounded more than expected in the second quarter, at 3pc.

It comes on the day the US Fed is widely expected to leave interest rates unchanged, rebuffing persistent calls by Donald Trump to cut interest rates.

The euro extended losses against the dollar following the release of the US GDP data. It is down 0.65pc to $1.1475, on track for the fifth day of losses in a row.

The euro is also poised to record its first monthly drop in 2025, following a sharp reaction to a US-European Union trade deal earlier this week.

The dollar index - which compares the US currency with key rivals - added to its gains after the GDP report. It was up 0.55pc at 99.43, hitting its highest since May 20 and on course to post its first month of gains this year.

“I think people are reading too much into the GDP numbers; nobody in markets should think GDP was that weak in Q1 and that strong in Q2 even though the big drivers were inventories and net exports,” said Steve Englander, at Standard Chartered in New York.

“I will add the two quarters together and they averaged about 1.5[c GDP growth per quarter, which is not a recession but qualifies as mediocre.”

The US Fed will see that the US economy remains “resilient”, the world’s oldest merchant bank has said.

Atakan Bakiskan, US economist at Berenberg, said: “Major swings in import volumes since President Donald Trump took office in January have distorted headline GDP figures in both Q1 and Q2 ... making it harder to get a “clean read” of the US economy.

“So, to gauge the underlying economic strength, the Fed will almost certainly continue to rely on the less volatile measure called private domestic final purchases, which excludes inventories, trade and government spending from the headline GDP figure. This measure showed underlying activity rose 1.2pc ... annualised last quarter, after 1.9pc in Q1 2025.

“The Fed will stay focused on what sits in the front seat - [including] the holy grail non-farm payroll data - to assess the health of the US economy. That has so far proved resilient so far and should remain so on Friday [when the next figures are released].

“With only a few hours left until the Fed decision, which is all but guaranteed to be a hold, today’s GDP report will not change the narrative of a slowing but not stalled US economy.”

The US economy is growing at an average quarterly rate of 1.3pc so far this year, down from more than 2pc last year, according to Citi.

Analyst Gisela Young said that despite the swings in the trade data “underlying growth is slowing” as consumer spending cools.

Combined, the 0.5pc contraction at the start of the year and the 3pc surge in GDP growth in Q2 mean average quarterly growth is down significantly compared to 2024.

Ms Young said: “The slowdown in underlying growth has been driven by softer consumption growth, particularly in services, and we expect this softness to continue.”

Lara Castleton, of Janus Henderson Investors, has said that the “doomsday predictions” after Donald Trump began his trade war have been proved wrong.

She said that today’s US GDP data “shows that recession calls are misplaced and the economy is stronger than many would have expected.”

The asset manager said that investors should “lean into growth” during the rest of the year.

“Positive contributors should be AI infrastructure investment and fiscal spend from the One Big Beautiful Bill Act (OBBA), but all eyes will be on the consumer and labour market, which are resilient but showing cracks beneath the surface.

“Investors should remain prepared to stay the course in this environment, leaning into growth and finding opportunities in quality companies. At the same time, the Fed is likely to stay on hold, and investors should be cautious about taking on longer-term bonds, and may prefer to stay in intermediate maturities while uncertainty remains.”

The US Federal Reserve is expected to leave interest rates unchanged this evening, even as Donald Trump continued to push it to cut borrowing costs.

Mr Trump used the release of second-quarter economic growth numbers to argue for lower rates in order to “let people buy, and refinance, their homes!”

The president has suggested the Fed cut the benchmark rate from the current 4.25pc-4.50pc range to as low as 1pc.

But with inflation still above the Fed’s 2pc target and the unemployment rate remaining low, money markets are predicting that rates will be held.

Traders will close closely watching any clue in the wording of the Fed’s policy decision or in Mr Powell’s post-meeting press conference about the possibility of a rate cut in September

It is unclear how far the statement or Powell will go in providing guidance about the September meeting, with two months of inflation and jobs data still to come before then.

Deutsche Bank economists said: “We expect the Fed to hold rates steady for the fifth straight meeting and largely maintain existing signals about the policy outlook.

“In terms of near-term policy, Powell is unlikely to remove a September rate cut from consideration nor intentionally raise the probability of that outcome. Instead, ahead of key data releases - including two more jobs and inflation reports - we expect he will continue to indicate the Fed’s data-dependent stance, which will entail making decisions on a meeting by-meeting basis.”

White House press secretary Karoline Leavitt called on Fed chairman Jay Powell to cut interest rates.

Ms Leavitt said: “The data is clear, and there are no more excuses - now is the time for ‘too late’ Powell to cut the rates!”

Bureau of Economic Analysis figures showed the Personal Consumption Expenditures Price index (PCE) rose by 2.1pc in Q2, down from 3.7pc in the first three months of the year.

America’s strong growth rebound has boosted the dollar, giving the greenback some much-needed support after a tough first half to 2025.

The dollar is up 0.67pc against the euro, pushing the single currency to $1.1467, its lowest level in more than a month.

Similarly USD rose 0.34pc against sterling, leaving £1 worth $1.3294 - a two-month low.

Stocks barely budged, with the S&P 500 up 0.11pc.

Underneath the swings in headline GDP, America’s private sector is in a slowdown.

Olu Sonola, head of US economic research at Fitch Ratings, said: “A 3pc expansion in Q2 doesn’t signal a roaring economy any more than the 0.5pc contraction in Q1 pointed to an economic downturn. 

“Private domestic final purchases - a core metric favoured by Chair Powell, which strips out tariff-driven volatility - now reflect a slowdown in the real private sector economy.

“Government spending on goods and services has also slowed down significantly.”

The signs of US economic resilience will be a blow to Donald Trump’s hopes of interest rate cuts, analysts warn.

Matthew Ryan, of financial services firm Ebury, said the stronger than expected GDP data will worsen the case for an imminent interest rate cut from the Federal Reserve.

Mr Ryan said: “Not only will the data support the narrative that the US economy is almost immune to the tariff disruption, but it should ease pressure on the Fed to rush into rate cuts.
 
“We expect Chair Powell to talk up this economic resilience following today’s FOMC meeting, and he will likely steer clear of signalling a September cut, which now appears very much in doubt.”

Growth will be weaker this year than last, according to James Knightley at ING. That is because America’s households are worried, and that means less spending.

“Consumers are nervous about the outlook, construction is struggling and business investment has lost momentum. We continue to expect 1.6pc GDP growth in 2025 versus the 2.8pc recorded in 2024,” said the economist.

“The consumer story is critical to the outlook, given it accounts for around 70% of economic activity as measured by GDP. Anxiety over the price impact of tariffs on household spending power, worries about the outlook for jobs and uncertainty caused by big swings in asset price.”

That is particularly important because the trade war is not yet over.

Mr Trump paused many of the so-called “liberation day” tariffs and has negotiated some separate trade deals with individual nations including the UK and Japan.

But even under those deals, border taxes mean imported goods will cost more for American households and businesses than they did before the President came to power. Most British-made products will incur a 10pc tariff, with EU goods facing a 15pc tax. Steel and aluminium are charged a 50pc tax on entry to the US, with negotiations yet to take place on pharmaceuticals.

Border taxes on products from a wide range of countries are still set to rise on 1 August.

India is the latest nation to face Mr Trump’s wrath.

“While India is our friend, we have, over the years, done relatively little business with them because their Tariffs are far too high, among the highest in the World, and they have the most strenuous and obnoxious non-monetary Trade Barriers of any Country,” he posted online.

He also criticised the Modi government for buying military equipment and energy from Russia, supporting Vladimir Putin’s war machine.

“INDIA WILL THEREFORE BE PAYING A TARIFF OF 25%, PLUS A PENALTY FOR THE ABOVE, STARTING ON AUGUST FIRST,” Mr Trump posted on Truth Social.

The US economic outlook has been upgraded following signs that Donald Trump’s trade has not hit the US economy as badly as economists had expected so far.

The Centre for Economics and Business Research (CEBR) has raised its forecast for US GDP growth from 1.4pc to 1.6pc following better than anticipated economic data.

CEBR managing economist Pushpin Singh said: “While distortions continue to cloud the headline GDP figures, early signs suggest US trade policy is proving less disruptive than feared.

“With a continually resilient labour market and easing inflation concerns, the US economy may well avoid significant pain, though we have yet to see the full effect of tariff pass through. 

“In response, Cebr has revised its 2025 GDP growth forecast up from 1.4pc to 1.6pc.”

The 3pc surge in GDP “overstates” the strength of the US economy, according to Capital Economics.

Thomas Ryan, North America economist at the consultancy, said: “The 3.0pc annualised gain in second-quarter GDP overstates the economy’s underlying strength, as it was largely driven by a 30pc slump in imports as pre-tariff stockpiling unwound.

Underneath the figures is a “more worrying development” which is that growth in sales to private domestic purchasers (the sum of consumer spending and gross private fixed investment) slowed to 1.2pc, Mr Ryan said.

This was down from 1.9pc growth at the start of the year and was the weakest reading since late 2022.

The rebound in US growth is mirrored in weak eurozone economies.

That is because much of the US’s apparent strength comes from a fall in imports - translating into a drop in exports from other nations.

Germany - a major exporter - shrank by 0.1pc in the first quarter, as did Italy.

Spain, which is relatively insulated from the trade war and has instead been booming with strong demand from tourists, grew by 0.7pc. France managed a surprisingly strong 0.3pc.

Overall the eurozone eked out a 0.1pc expansion.

Those all show GDP compared to the previous quarter.

The US is unusual in publishing growth figures showing the economy’s trajectory if it maintained that pace for a year.

On a quarterly basis, it grew by 0.7pc - faster than every eurozone nation except for Spain.

Underneath the data distortions from the tariff impact, the US economy is slowing down, analysts said.

Lindsay James, investment strategist at Quilter, said data in both the first and second quarters of the year are “heavily distorted by the impact of tariffs” which is clouding what is really happening in the US economy.

Ms James said: “Averaging the two gives a clearer picture of the underlying run rate, which gives a picture of an economy that has slowed under the headwinds of policy uncertainty and rising costs.”

Although consumer spending rose by an annualised rate of 1.4pc in the spring, up from 0.5pc at the start of the year, this was half the 2.8pc growth rate across 2024.

It is not the first time Mr Trump has criticised the central bank boss, who he appointed personally during his first term in the White House.

The President recently called Mr Powell a “numbskull”, and has repeatedly called for interest rates to be slashed as low as 1pc.

The Trump administration appears to have rowed back from earlier suggestions the President could sack the Fed chief, amid fears of a market meltdown if too much political influence is applied to cut borrowing costs regardless of economic conditions.

Central bank independence to set interest rates has been considered sacrosanct for several decades among economists and financiers for several decades, who see it as the best way to hold down inflation and secure a degree of economic stability, rather than forcing short-lived, credit-fuelled booms for political ends.

However, the possibility of Mr Powell’s has not been entirely ruled out. The President and the Fed chairman clashed last week on a tour of renovations at the central bank. Criticism of the cost of the building works has given rise to suspicions the bill could be used as a means to unseat Mr Powell.

Inflation fell to 2.1pc, according to the personal consumption expenditures index (PCE) measure released at the same time. That is down from 3.7pc.

Mr Trump said it means Mr Powell at the Fed should cut rates immediately, repeating his nickname “too late” for the central bank chief.

The Federal Reserve’s policymakers will announce their latest interest rate decision this evening at 7pm UK time.

Financial markets and economists widely expect Mr Powell to reject Mr Trump’s calls for rate cuts, and keep the Federal Funds Rate in its range of 4.25pc to 4.5pc.

The return to growth primarily reflected a drop off in imports, which are a subtraction from the GDP calculation, and a modest pickup in consumer spending, according to the US Bureau of Economic Analysis.

This was in stark contrast to a surge in imports at the beginning of the year, when companies raced to import goods ahead of Mr Trump’s anticipated tariff announcements and which drove down the GDP figure.

Trade statistics on Tuesday showed US goods imports dropped by $11.5bn in June, driven primarily by a $8.2bn decline in consumer goods imports as Mr Trump’s tariffs hit global trade.

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