Jerome Powell made a surprise visit from Trump. Anyway, he’s poised to avoid changing interest rates.
The Federal Reserve is expected to change short-term interest rates on Wednesday for its fifth consecutive meeting. Deep split Between the way Speaker Jerome Powell and his lead critic, President Donald Trump, look at the economy.
Certainly, the Fed itself is becoming increasingly divided in the next step, with many economists hoping that two members of the Fed’s management committee, both appointed by Trump, could oppose the cut rate on Wednesday. If so, that would be the first time since 1993 that two governors have voted for chairman.
Still, the gap between the views of the Fed’s interest-setting committee, chaired by Powell and the White House, and the White House, is extraordinarily large. In some areas, Trump’s views are in stark contrast to the Fed’s leadership views, even after Powell’s term at the end of the Chair in May 2026, and are likely to clash with them for the next few years.
For example, Trump says the Fed should cut interest rates, as if the US is a blue-chip company that pays less than risky startups because the US is doing well.
But Fed officials, and almost every economist, look at it the other way around. A solid economy means that rates should be relatively high to prevent overheating and inflation explosions.
“We argue that our interest rates are higher because our economy is still doing pretty well,” said Gennadiy Goldberg, head of TD Securities’ US fare strategy.
Trump argues that the Fed generally, and Powell in particular, is sacrificing hundreds of billions of dollars in interest payments to US taxpayers by not cutting borrowing costs. However, Fed officials don’t think it’s their job to cut down the fees the government pays for Treasury bills and bonds.
Most economists are worried that if they do, they risk failing to fight inflation, one of the main tasks Congress has given them.
“We use monetary policy to ease pressure on fiscal policymakers, and in that way we show higher inflation and greater problems in the future,” said William English, an economist at Yale Management of Management and a former senior FED staff economist.
If financial markets believe that the Fed is focusing on keeping costs low to support the government, then Wall Street investors worried about future inflation are likely to demand higher interest rates to hold financial debt, rather than focusing on stable prices and maximum employment targets. Increases borrowing costs The whole economy.
On his part, Trump said that because there was “no inflation,” the Fed now needs to cut the short-term rate to around 4.3%, increasing to combat rising prices in 2022 and 2023. Fed rates are often – but Not always – It affects the long-term borrowing costs of mortgages, car loans and credit cards.
There is in inflation It fell sharply And as a result, Fed officials have shown that they cut their fees as much as they do. Half the percentage points this year. I still have it I’ve picked up a bit over the past two months And many of these policymakers, including Powell, want to ensure that tariffs will bring in much higher inflation before they move.
Inflation accelerated June 2.7% From 2.4% in May, the government said earlier this month that it had surpassed the Fed’s 2% target. Core prices excluding volatile food and energy categories rose from 2.8% to 2.9%.
Last week, Trump and several White House officials stepped up their attacks against Powell above the rate. They are He was criticized again Balloon costs of the Fed’s renovation of two buildings raise questions about whether the president was looking for Fire up Powell for a cause, not for policy differences.
Trump and Powell engaged in Anne An extraordinary camera conflict More than the project cost when Trump visited the construction site last Thursday. On Monday, Trump was more detained for his comments on the Fed during a co-star with British Prime Minister Kiel Starmer in London.
“I’m not going to say anything bad,” Trump said. “We’re doing really well even without interest rate cuts.”
But he added, “The wise man will cut him.”
Some economists hope that the Fed will cut its key rate by a quarter point in September rather than July, and say the two-month delay makes little difference to the economy.
But beyond the timing of the initial cuts, there is still a huge bay between what Trump wants and what the Fed is even thinking about doing. In June, Fed officials said they cut twice this year, one in 2026. Trump is pushing them to cut it to just 1%.
“That doesn’t happen with things like the people on the committee today,” English said.
Wall Street investors are hoping for relatively small cuts, according to futures prices tracked by CME’s FedWatch.
According to the Fed’s forecast, only two staff members in June supported the three cuts this year. Probably Gov. Christopher Waller and Michelle Bowman, Trump’s appointments from his first semester.
Waller I gave a speech early This month he supports interest rate cuts in July, but for reasons that are very different from Trump, he fears the economy will shake up.
“The economy is still growing, but its momentum has dropped significantly, and the risk of rising unemployment “has increased,” Waller said.
Waller also emphasizes that tariffs create one-off bumps in prices, but not leading to ongoing inflation.
However, most Fed officials believe the job market is relatively healthy – the unemployment rate is 4.1% lower – so they can take the time to see how it all works.
“The continued solid overall economic situation allows the Fed to take the time to carefully evaluate a wide range of incoming data.” I said Susan Collins, president of the Boston Federal Reserve. “Therefore, in my view, the “active patient” approach to monetary policy remains appropriate at this point. ”