President Donald Trump is running out of patience: He wants lower interest rates, a key part of his economic agenda. The only problem: America’s rate-setters don’t report to him.
Trump over the past week has ripped into Federal Reserve Chair Jerome Powell for not lowering borrowing costs, threatening to fire him from what is an independent government agency. On Monday, Trump renewed his public pressure campaign against Powell, calling him a “major loser.”
But Trump’s demands stand in stark contrast with the Fed’s data-driven approach. Not only is inflation still higher than Fed officials want, but Trump’s massive policy shifts threaten to send prices even higher.
“The risks to inflation are more elevated than they were a year ago, so the consequence of that is we might have to hold policy tighter for longer than we had thought,” San Francisco Fed President Mary Daly said Friday at an event hosted by the University of California, Berkeley.
The Fed, under Powell’s leadership, has so far succeeded in tamping down the fastest inflation in more than 40 years without a recession, an exceptionally rare feat known as a “soft landing.” Even Republicans such as Sen. John Kennedy of Louisiana have praised the Fed’s staunch commitment to data.
In recent public speeches, several Fed officials have agreed that they can be patient before introducing a rate cut. Inflation is still above the Fed’s 2% target and the job market remains in good shape, so there isn’t a convincing case for the Fed to cut rates.
Trump’s broad and high tariffs have also injected uncertainty into the economy. Forecasters say America could be on a path toward significantly weaker growth and faster inflation — a toxic combination known as “stagflation.”
Boston Fed President Susan Collins also echoed that sentiment recently, saying that “I see monetary policy as well positioned to address a wide range of potential economic outcomes in this highly uncertain environment.”
Translation: Interest rates can easily change in either direction, so it’s best to stand pat, especially at such an uncertain moment, until the economic data says otherwise.
‘More work to do’
When the economy is in trouble and unemployment starts to ratchet higher, the Fed typically steps in to stop the bleeding by cutting rates. But there isn’t data showing economic instability or high unemployment.
The Fed’s preferred inflation measure — the personal consumption expenditures price index — has come down substantially since reaching a four-decade peak in June 2022. But it was still at an annual rate of 2.5% in February. The Fed’s target is 2%.
The economy also remains on solid footing: Unemployment remains low, employers continue to add jobs at a solid pace, and consumer spending, which powers two-thirds of the US economy, has slowed but it hasn’t fallen off a cliff just yet.
“The US economy is continuing to expand, but the pace of growth appears to have moderated,” St. Louis Fed President Alberto Musalem said on April 11 at an event in Hot Springs, Arkansas. “There is still more work to do to bring inflation back down to our 2% target.”
The Fed operates independently from the White House, which means Powell and other Fed officials can set interest rates based on what they think is best rather than on short-term political considerations. That independence can be deeply reassuring to investors at times of heightened uncertainty — like now.
“Fed independence is more important than ever at a time when there is risk to underlying inflation and inflation expectations from Trump tariff inflation,” analysts at Evercore ISI wrote in an April 17 analyst note.
And while Trump wants interest rate cuts, Fed officials have signaled they are fine at their current rate.
“The stance of monetary policy is well positioned,” Dallas Fed President Lorie Logan said at an event in Dallas earlier this month.
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