Gridlock between Trump and the US Federal Reserve: Holding Fast on Interest Rates
Collision with Trump: Federal Reserve Maintains Interest Rate at Current Level - Heading towards a clash with Trump: Federal Reserve maintains hold on interest rates
In a standoff with US President Donald Trump, the Federal Reserve (Fed) has kept the key interest rate steady at a high level, sparking another clash. The central bank's rate hangs within the 4.25% to 4.5% bracket, as revealed during the recent meeting in Washington. This figure signifies the interest rate at which commercial banks can borrow from the central bank. The decision was anticipated by analysts. Trump, in recent weeks, repeatedly urged the Fed to retreat on the interest rates. The Fed attributes the decision to sustain the increased risk of inflation, which could indirectly address Trump's aggressive trade policies.
Trump's Take: "I've got a mind shaped like a precision instrument, and Powell's got a pea for a brain."
Recently, Trump has been firing verbal ammunition at Fed chairman Jerome Powell. He quipped, "I've got a brain like a finely-tuned Swiss watch, and Powell's got a pea for a brain." The Fed operates autonomously from the US government. Powell has signaled in recent public appearances that a sudden interest rate cut is unlikely, primarily due to Trump's contentious trade policies.
Since his appointment, Trump has slapped heavy tariffs on goods from diverse countries. Ongoing uncertainty about the possible repercussions of this aggressive strategy fuels inflation. Although US inflation has soothed considerably lately, US consumer prices climbed by a mere 2.4% annually in March, compared to 2.8% in February. The future sustainability of this trend remains uncertain, as March signified the month preceding Trump's comprehensive tariff package covering goods worldwide.
The Fed's Duty: Taming Inflation
The Fed has the responsibility to keep inflation in check. The target inflation rate is 2%. High interest rates serve as a defense mechanism against escalating consumer prices. By making loans expensive, demand dwindles, leading companies to avoid raising their prices. On the flip side, higher interest rates encourage saving, which may slow down the economy.
In September 2022, the Fed commenced a rate hike, eviscerating interest rates by a blunt 0.5 percentage points. The subsequent two months of November and December witnessed smaller steps, each rising 0.25 points. Since then, the central bank of the world's most powerful economy has been tampering not a finger on the key interest rate, despite a persistently high inflation rate. The Fed predicts the average key interest rate to stand at 3.9% by 2025, indicating two minor interest rate hikes this year.
Trump's Dream: Stimulating Economy through Lower Rates
The Fed's moves are leading it to a showdown with Trump, who yearns for a substantial cut in interest rates. Trump has always championed low-interest rates, hoping they will bolster stock markets, lessen government borrowing costs, and amplify economic growth. Recently, Trump has grappled with a bitter pill related to the economy: The US economy experienced a considerable slowdown in the first quarter of the year and unexpectedly slid backwards.
Experts did not foresee such a clear reversal but had only anticipated a slowdown in growth. Trump pinned the blame on Joe Biden's economic policies. However, experts believe that Trump's trade policies are set to negatively affect the economy and elevate prices in the near future. Trump brushes off concerns about high tariffs.
Donald Trump, the US Federal Reserve, Interest Rates, Inflation, Political Pressure, Tension between President and Central Bank
- The President of the United States, Donald Trump, and the Federal Reserve (Fed) chief, Jerome Powell, appear to be on a collision course, as Trump continues to urge the Fed to lower interest rates, a move that the Fed attributes to the need to sustain the increased risk of inflation, resulting from Trump's aggressive trade policies.
- The impasse between the President of the United States, Donald Trump, and the Fed, particularly over interest rates, unfolds against the backdrop of political pressure, business, and finance, all areas that are crucial components of general-news. The Fed's duty to tame inflation, as Trump faces criticism over his economic policies and the slowdown of the US economy, serves as the focal point of this tension.
