- Trump demanded Fed Chair Powell’s removal over refusal to cut interest rates
- Powell warned Trump’s tariffs could raise inflation and delay Fed action
- The ECB cut rates again, but the Fed remains cautious amid economic uncertainty
President Donald Trump lashed out at Federal Reserve Chairman Jerome Powell on Thursday, condemning him as ‘laziest’ and ‘always wrong’ for not reducing the interest rates during the emerging economic risks. In a post on his platform Truth Social, Trump welcomed Powell’s dismissal by saying ‘the termination cannot come fast enough’, which puts pressure on the independence of the central bank.
This came after the former president’s speech, in which Powell addressed the Economic Club of Chicago and acknowledged the independence of the Fed. According to Powell, the Fed needs to wait for “greater clarity” before responding with more moves in monetary policy due to factors such as Trump’s tariffs.
Trump nominated him in 2018 and has since then crossed swords with him on the rate-setting policy. While Trump cannot fire Powell before his term ends in May 2026, Trump’s tweet suggested his desire for the Supreme Court to alter the balance of power within independent agencies.
Trump Tariffs Raise Inflation Risk as ECB Cuts Rates Again
Trump claimed the European Central Bank’s equivalent recently lowered its rates and stated that it is long overdue Powell had to cut the United States’ rates. The current federal funds rate range is between 4.25% and 4.50%, maintaining the same level since December. Meanwhile, the ECB cut rates for the seventh time this year to counter economic weakness in Europe.
Powell also stated that Trump’s tariff endeavor could exacerbate inflation and, therefore, put the Fed in a difficult spot to justify the rate cuts. On Wednesday, Powell stated that the American economy is still robust, but threatened tariffs have materialized that could cause inflation to go up, at least in the short term, with possibilities of permanent.
He explained that the central bank cannot help but “wait for greater clarity” to absorb the changing trade policy. The Fed chair was given a round of applause by business leaders in Chicago owing to his stand on policy independence. However, this elicited a response from Trump, who argued that Powell had been ignoring the positive side of tariffs, including lower oil and grocery prices, in addition to increased national revenue.
Global Markets Watch Fed Response to Political Pressure
Trump’s new threats have been made at a time when investors are worried about trade and inflation issues. His past utterances on tariffs elicited negative market reactions that led to the suspension of some import tariffs for 90 days. However, China does not fall under that exemption. The World Trade Organization has stated that Trump’s tariff plans may slow down global trade and lower its rate.
While Trump has recently associated tariffs with the idea of making the American economy great, Powell focused on the dangers of intensive trade practices. He said this puts the Fed in a dilemma in regard to its dual mandate of addressing inflation as well as employment because it has no clues of how tariffs are likely to affect the performance of the economy.
However, Powell reiterated his policy-tightening message and made clear it is impossible to change policy to accommodate Trump for a policy without a change in the economic environment. However, he argued that the independence of the Fed is crucial for international financial markets.
