United States(US) President Donald Trump has escalated his attacks on Federal Reserve Chairman Jerome Powell, calling on the Fed board to wrest control from Powell and lower interest rates. In a series of social media posts, Trump demanded that the board assume control and “DO WHAT EVERYONE KNOWS HAS TO BE DONE!” Trump also suggested that Powell should be “put ‘out to pasture'”.
This comes after Powell announced that interest rates would remain steady at 4.25 to 4.5 percent, citing a risk of inflation linked to Trump’s trade policies. Trump has been arguing that inflation is now at sustainable levels, so there is no need for interest rates to remain high. However, Powell warned that the uptick in prices could be “short-lived” or persistent, arguing for a cautious approach while monitoring inflation.
The Federal Reserve operates independently of political officials, setting interest rates to accelerate economic activity or bring the cost of living under control. During the COVID-19 pandemic, interest rates plummeted to prevent a prolonged recession. However, as supply-chain disruption and an abundance of money in the economy sparked an inflation crisis in 2022, the Fed hiked interest rates to levels not seen since the 2008 Great Recession.
Trump’s 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. The decision to keep interest rates steady proved controversial, with the Fed board seeing rare dissent from two members, both Trump appointees, who publicly argued for more rate cuts. Trump warned Powell that the dissent “WILL ONLY GET STRONGER”, saying “Jerome ‘Too Late’ Powell is a disaster. DROP THE RATE! The good news is that Tariffs are bringing Billions of Dollars into the USA!”
The central bank’s rates indirectly set the rates for private lending across the country. Trump’s tariffs have sparked economic uncertainty, with companies weighing financial guidance, staffing decisions, and prices. The US trade court in May sided with challengers and ruled Trump’s tariffs illegal, but the US Court of Appeals for the Federal Circuit quickly paused that order and allowed the tariffs to stay in place temporarily until they could resolve the case.
In a recent development, Trump extended Mexico’s current tariff rates for 90 days to allow more time for trade negotiations. The contested levies could be in place for weeks or months before there’s a final resolution, creating more financial uncertainty for businesses.