Powell emphasizes Fed's obligation to prevent 'ongoing inflation problem' despite Trump criticism
Fed, Trump Clash Over Interest Rate Policies
Key Takeaways
Fed holds firm: Powell emphasizes patience on rate cuts despite Trump's demands, prioritizing inflation control over political pressure .
Tariff uncertainty: New import duties could spike prices, but the Fed aims to prevent temporary hikes from becoming persistent inflation .
Economic split: While unemployment sits at 4.2% and growth stays solid, Fed officials debate timing of cuts—some push for July, others urge caution .
Market expectations: Futures show just 23% odds of a July cut, with September viewed as more likely for the first reduction .
Presidential attacks: Trump escalates criticism, calling Powell "very dumb, hardheaded" and urging Congress to pressure him during testimony .
The Fed’s Inflation Fight Clashes With Political Pressure
Jerome Powell walked into Congress this week knowing he’d face fire from two directions. On one side, President Trump’s Truth Social rant demanded rate cuts, slamming the Fed chair as “very dumb, hardheaded.” On the other, Powell’s own data showed inflation ticking upward—2.3% in May versus 2.1% in April for the Fed’s preferred PCE gauge . His opening statement to lawmakers didn’t budge an inch: “We are well positioned to wait,” he insisted, framing tariffs as a wildcard that could worsen pricing pressures .
Trump’s been clear about what he wants—at least 2-3 points slashed off rates to “save the USA 800 Billion Dollars Per Year” . But Powell’s thinking long-term. He reminded Congress that without price stability, those “strong labor market conditions that benefit all Americans” vanish . Even with unemployment low at 4.2%, he’s digging in against political heat.
Why Tariffs Complicate the Rate Cut Timeline
New tariffs on imports—10% across the board, plus steeper duties on Chinese goods (30%), steel/aluminum (50%), and autos (25%)—are the elephant in the room . Powell acknowledged they’ll likely “push up prices and weigh on economic activity,” but the timing and scale remain unclear . Businesses stockpiled goods early, muting immediate consumer impact. Airfares and hotel costs even fell recently, offsetting some tariff-driven spikes .
The Fed’s worry? A one-time price jump could spiral if consumers and businesses expect endless increases. As Powell put it: “The FOMC’s obligation is to prevent a one-time increase in the price level from becoming an ongoing inflation problem” . Until the tariff effect crystallizes—likely by late summer—he’s resisting rate moves.
How Tariffs Could Impact the Economy
Inside the Fed’s Split: Hawks vs. Doves
While Powell preached patience, cracks emerged among his team. The Fed’s June “dot plot” revealed stark divides:
7 officials projected zero cuts in 2025
2 officials forecast one cut
10 officials backed at least two cuts
Two Trump-appointed governors, Michelle Bowman and Christopher Waller, openly pushed for a July cut. Waller argued tariffs’ impact looks “smaller than initially expected,” making delays unnecessary . But Powell’s inner circle seems aligned with markets—futures traders price just a 23% chance of a July move, betting heavily on September .
This isn’t just policy debate; it’s personal. Waller’s name circulates as a potential Powell successor when his term ends next May . The stakes couldn’t be higher.
Trump’s Attacks and the Fed’s Fragile Independence
“I hope Congress really works this very dumb, hardheaded person over,” Trump posted hours before Powell’s testimony . It’s his fourth broadside this month alone, including “Too Late—Powell is the WORST” after June’s rate decision .
Historically, Fed chairs shield policy from politics. But Trump’s pressure—and his allies in Congress—test that tradition. Last February, Republican committee chair Rep. French Hill urged Powell to keep rates high until inflation hit 2% . Now, with Trump demanding the opposite, Powell’s congressional backing could fray.
The real danger? If markets doubt the Fed’s autonomy. Earlier threats to fire Powell sparked investor warnings of a “severe” asset crash . For now, Powell’s betting on data over demands.
What’s Next for Interest Rates
The Fed’s next meeting (July 29-30) looms as a battleground. Here’s what could sway the decision:
June/July inflation data: If PCE dips toward 2%, Bowman and Waller’s push for a July cut gains steam.
Tariff clarity: Will Trump escalate duties further? Businesses need predictability.
Jobs numbers: Unemployment claims above 300,000 would signal labor weakness, favoring doves .
Most analysts see September as the realistic starting point for cuts. As U.S. Bank’s Rob Haworth notes: “The Fed is waiting on the data... Until we get major changes, they’ll remain cautious” . Powell’s holding his ground—but for how long?
Why the Economy’s Health Hinges on Anchored Expectations
Powell’s obsession with “well-anchored” inflation expectations isn’t academic jargon—it’s the Fed’s best defense against 1970s-style spirals. Surveys show consumers and businesses already expect near-term bumps from tariffs . If those views harden, workers could demand higher wages, and companies might hike prices preemptively.
The Fed’s tools work best when people trust 2% inflation. As Powell told Congress: “Without price stability, we cannot achieve long periods of strong labor market conditions” . For him, that’s worth Trump’s fury.
Fed Policy Timeline: Key Dates Ahead
July 29-30: FOMC meeting—Waller/Bowman push for cut
Sept 17-18: Likely first cut if tariffs don’t fuel inflation
Nov 6-7: Possible second cut if unemployment rises
Dec 17-18: Final meeting—dot plot updates for 2026
FAQs: Powell, Rates, and Trump’s Demands
Q: Can Trump fire Jerome Powell?
A: Technically no. Fed chairs serve fixed terms, and Powell’s runs until May 2026. Trump could decline to reappoint him but can’t remove him before then .
Q: Why not cut rates now since inflation is down from 2022 highs?
A: Core inflation (excluding food/energy) remains at 2.6%—above the 2% target. Premature cuts could reignite price surges if tariffs bite deeper .
Q: How do tariffs actually affect inflation?
A: They raise import costs, which companies may pass to consumers. But effects lag (often 6-12 months) and can be offset by falling prices elsewhere .
Q: What’s the likeliest date for the first rate cut?
A: Markets and most Fed officials point to September. July is possible but needs sharply cooler inflation data .
Q: Would rate cuts really “save” $800 billion as Trump claims?
A: Unclear. Lower rates reduce government borrowing costs, but Trump hasn’t detailed his math. Some economists call it overstated.