US Federal Reserve vs Trump: Fed Holds Steady on Interest Rates Amid Trade Tensions
Heading Toward a Clash with Trump: Fed Steers Clear of Adjusting Crucial Interest Rate - Headed Towards Downtown Trump: The Fed is Holding Off on Adjusting Interest Rates
Let's dive into the ongoing saga between the US Federal Reserve (Fed) and the White House, as the central bank maintains its interest rate within the 4.25% to 4.5% range, causing friction with President Donald Trump. As announced in Washington, this is the rate at which commercial banks can borrow from the central bank, a decision expected by analysts.
Trump has repeatedly called for lower interest rates in recent weeks, while the Fed, in its defense, points to the increased risk of higher inflation due to Trump's aggressive trade policy. With his characteristic bravado, the President has voiced, "I think I understand more about interest rates than Powell." However, the Fed Chairman, Jerome Powell, has made it clear that a quick interest rate cut is unlikely.
Trump's advocacy for low-interest rates is rooted in the belief that they will support stock markets, make government financing cheaper through debt, and boost economic growth. Yet, economic experts caution that such a move could fuel inflation, especially given the current economic climate.
Speaking of the climate, recent indicators suggest that economic activity continues to expand at a solid pace, while the unemployment rate remains at a low level, and labor market conditions remain robust [1][3]. Inflation, though somewhat elevated, shows signs of decreasing [4].
Nonetheless, experts anticipate a potential negative impact on the economy from Trump's trade policy in the coming months, which could lead to higher prices. The President, however, brushes off concerns about the impact of high tariffs on the economy.
In a bid to control inflation, the Fed's task is to maintain its target rate of 2 percent, using high interest rates as an instrument against rapidly rising consumer prices. In September 2022, the Fed initiated a rate hike with a clear cut of 0.5 percentage points, followed by two smaller steps of 0.25 points each in November and December [4]. Since then, the Fed has not adjusted the policy rate, despite persistent inflation. The central bank of the world's largest economy expects the policy rate to be 3.9 percent on average in 2025, indicating two small rate hikes this year [4].
The Fed and Trump find themselves on a collision course due to their differing views on how to address inflation concerns. While Trump pushes for lower rates to combat potential economic slowdowns, the Fed prioritizes maintaining financial stability and achieving its inflation target. As this unfolds, we'll keep our eyes on the Fed's policies and their impact on the American economy.
Donald Trump US Federal Reserve Interest Rate Inflation US President Jerome Powell Collision Course Republican Leader
[1] Federal Reserve Officials Discuss Inflation Risks and Economic Outlook - CNBC[2] Fed leaves interest rates unchanged as policymakers see rate hikes on hold for now - Reuters[3] Federal Reserve Beige Book: Economic Conditions Improved across Most Districts - Investopedia[4] Fed Likely to Keep Interest Rates High as Inflation Rises - The New York Times
The President of the United States, Donald Trump, and the Federal Reserve Chairman, Jerome Powell, are on a collision course as Trump calls for lower interest rates to boost economic growth, while Powell maintains a steady interest rate to control inflation and achieve the Fed's target. This standoff highlights the contrasting views between the White House and the central bank.
Finance, business, politics, and general-news outlets are closely monitoring the ongoing dispute, as the consequences for the American economy could be significant, particularly in light of the President's aggressive trade policy and its impact on inflation. The Republican leader's push for low-interest rates risks fueling inflation, according to economic experts, and could undermine the Fed's efforts to stabilize the economy.
