Stocks surged on Friday after Federal Reserve Chair Jerome Powell signaled that the central bank could finally lower interest rates following months of pressure from President Donald Trump.
But he bluntly said it would not be because of Trump’s pressure campaign—and in fact would be because the economy is faltering.
Powell also stood up for the Fed’s independence from the executive branch in a carefully worded rebuke of Trump, whose administration stepped up the pressure this week by pushing a criminal investigation into Lisa Cook, the first Black women to be a Fed governor. Bill Pulte, an obscure MAGA functionary who runs the Federal Housing Finance Agency, accused her of mortgage fraud than asked Pam Bondi, Trump’s attorney general, to investigate.
The Fed has refused all year to lower interest rates, citing concerns that Trump’s tariffs will lead to higher costs and fuel inflation.
In response, Trump has raged at Powell on social media, calling him a “TOTAL LOSER” who is “TOO ANGRY, TOO STUPID, & TOO POLITICAL, to have the job of Fed Chair.” He has also repeatedly demanded that Powell resign.
“Could somebody please inform Jerome ‘Too Late’ Powell that he is hurting the Housing Industry, very badly?” Trump wrote just this week on Truth Social. “People can’t get a Mortgage because of him. There is no Inflation, and every sign is pointing to a major Rate Cut.”
During an appearance at an investment conference in Jackson Hole, Wyoming on Friday, Powell seemed to finally agree with the president—but with significant caveats.
The latest data show that Trump’s tariffs have indeed led to rising prices that remain a major threat to the U.S. economy.
But now the labor market also appears to be faltering, creating an “unusual situation” in which layoffs and rising unemployment could make it less likely that the cost increases will fuel inflation, Powell said Friday at a conference in Wyoming.
“The balance of risks appears to be shifting,” he said.
The remarks strongly suggested the Fed could cut rates as early as next month, the Wall Street Journal reported.
That news sent major U.S. stock indexes jumping, with the S&P 500 going up 1.68 percent, and the Dow Jones Industrial Average and Nasdaq Composite both rising by more than 2 percent.
But Powell called the economy a “challenging situation,” and said Trump’s tariffs were fueling inflation, saying the “effects of tariffs on consumer prices are now clearly visible.
“We expect those effects to accumulate over coming months, with high uncertainty about timing and amounts.”
And he also strongly advocated for the continued independence of the Fed, which Trump has tried to bring under his control, telling the annual conference of central bankers that his speech was “based solely on their assessment of the data and its implications for the economic outlook and the balance of risks.”
“We will never deviate from that approach,” he said, signaling his belief in independence.
Trump was the one who appointed first Powell in 2018. The fed chief was then nominated by president Joe Biden for a second term, which ends next May. The Supreme Court has made a point of saying that Trump can’t fire Powell before then, and Powell has told associates he plans to finish his term despite Trump’s berating.
Last month the two men toured the Federal Reserve together, leading to an awkward exchange in which a reporter asked the president if there was anything Powell could say that would get the president to back off after his series of nasty attacks.
“Well, I’d love him to lower interest rates,” Trump joked as he slapped Powell on the back. “Other than that, what can I tell you?”
Powell just laughed in response.
The speech adds a new twist to the Trump economy. While a reduction in interest rates might stimulate activity—especially in a largely stalled housing market—and lessen the blow of tariffs, they point to growing concern by Powell about unemployment.
The most worrying prospect many economists have highlighted is that the Trump economy could become a stagflation story: stagnant growth combined with inflation. In the first three months of the year, the economy contracted by 0.5 per cent, while the second three month’s growth of 3 per cent was in part attributed to retailers stocking up in advance on the imposition of tariffs.
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