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US President Donald Trump has called upon Fed Chair Jerome Powell to cut interest rates yet again, citing the fall in US inflation. Meanwhile, while inflation rates have fallen from their peak, they are still above the 2% that the Fed targets.
Speaking with reporters, Trump said, “If we had a Fed Chairman that understood what he was doing, interest rates would be coming down, too.” He added, “He should bring them down.”
Trump Calls Upon Powell to Cut Rates
To be sure, this is not the first time that Trump has urged Powell to cut interest rates. In a post on Truth Social earlier this week, he said, “The ECB is expected to cut interest rates for the seventh time, and yet, “Too Late.” Jerome Powell of the Fed, who is always TOO LATE AND WRONG, yesterday issued a report that was another, and typical, complete “mess!”
He added, “Oil prices are down, groceries (even eggs!) are down, and the USA is getting RICH ON TARIFFS. Too Late should have lowered Interest Rates, like the ECB, long ago, but he should certainly lower them now. Powell’s termination cannot come fast enough!”
In a previous post, he said that Powell should cut interest rates and “STOP PLAYING POLITICS!”
Notably, while Trump appointed Powell as the Fed chair, the relations between the two were quite fraught as Powell raised rates during Trump’s presidency, much to his displeasure. In a 2019 tweet, Trump questioned whether Powell or Chinese President Xi Jinping was “our bigger enemy.”
In 2022, Joe Biden reappointed Powell as the Fed chair for four years, and his current tenure would last until mid-2026.
Powell Says Fed Is Independent of Politics
Last year, Powell indicated that he would serve his entire tenure while saying that U.S. presidents are “not permitted under the law” to fire members of the Fed.
In response to a question at the Economic Club of Chicago, Chicago, Illinois, earlier this week, Powell said, “Our independence is mandated by law. In our regulations, we cannot be dismissed without just cause, and our terms are long, seemingly endless. So, we are legally protected.”
He added, “Congress can amend this law, but I don’t think there’s any danger. The independence of the Federal Reserve has broad bipartisan support, and there is widespread support in both chambers. Therefore, I don’t think this is an issue.
The Fed chair emphasized, “we will never be influenced by any political pressure. People can say whatever they want, and that’s fine; it’s not an issue, but we will strictly do what we need to do without considering politics or any other irrelevant factors.”
Meanwhile, the Trump administration is contemplating whether it can legally fire Powell. According to White House economic adviser Kevin Hassett, “The president and his team will continue to study that matter.”
Fed Has Indicated a Wait-And-Watch Approach to Rates
The current Fed fund rates stand at 4.25%-4.5% – a level they were at in December 2022. The US central bank cut rates by 100 basis points last year after increasing them gradually in the previous two years.
While it began with a 50-basis-point rate cut in September, it followed up with 2 cuts of 25 basis points at subsequent meetings. However, the Fed has signaled a wait-and-watch approach to rate cuts, mainly because of uncertainty over Trump’s tariffs and possible retaliation from other countries.
On multiple occasions, Powell has cautioned about the economic impact of Trump’s tariffs. In his speech at Chicago, the Fed chair said, “The announced tariff increases so far have been much larger than expected. The economic impact may also be so, which will include higher inflation and slower growth. Short-term inflation expectation indicators based on surveys and markets have risen significantly, with survey participants pointing to tariffs.”
He added, “Tariffs are likely to lead to an increase in inflation at least temporarily. The inflation effect may also be more persistent. Avoiding this outcome will depend on the scale of the impacts, the time required for them to fully pass through to prices, and ultimately maintaining stable long-term inflation expectations.”
Recession Risks Rise Amid Tariffs
Several economists have warned of a recession amid the escalating global trade war. JPMorgan, for instance, has raised the odds of a US recession this year to 60% as compared to 40% before the tariff announcement. In his note, Bruce Kasman, head of global economic research, said, “These policies, if sustained, would likely push the US and possibly global economy into recession this year.”
Allianz’s Chief Economic Advisor, Mohamed El-Erian, has also warned about the growing risk of a recession. “You’ve had a major repricing of growth prospects, with a recession in the U.S. going up to 50% probability, you’ve seen an increase in inflation expectations, up to 3.5%,” said Erian, speaking with CNBC on the sidelines of the Ambrosetti Forum in Cernobbio, Italy.
Separately, a Deutsche Bank survey shows a nearly 50-50 chance of a recession. UCLA Anderson Forecast has also recently issued its first-ever recession watch amid concerns over Trump’s policies.
Powell Says Data Points to a Slowdown
According to Powell, “The data in hand so far suggest that growth has slowed in the first quarter from last year’s solid pace. Despite strong motor vehicle sales, overall consumer spending appears to have grown modestly.”
He added, “Surveys of households and businesses report a sharp decline in sentiment and elevated uncertainty about the outlook, largely reflecting trade policy concerns. Outside forecasts for the full year are coming down and, for the most part, point to continued slowing but still positive growth. We are closely tracking incoming data as households and businesses continue to digest these developments.”
Powell, meanwhile sees the labor market as quite balanced and said that while new job growth has slowed down, it has been offset by fewer layoffs and low growth in the labor force.
