Federal Reserve Chair Jerome Powell potentially reducing interest rates due to pressure from President Trump?
The Federal Reserve is set to announce its latest decision on interest rates this week, with the CME FedWatch tool showing a 96.9% chance of the Fed holding rates steady for the fifth consecutive meeting. The U.S. economy, according to Fed Chair Jerome Powell, is doing "really well."
Despite pressure from former President Trump and the impact of tariffs on inflation, the Federal Reserve is not expected to lower interest rates immediately. Inflation has remained persistently above the Fed's 2% target, with the current concern being that tariffs may push inflation further away from the target.
Goldman Sachs Research no longer expects a Fed rate cut in July 2025 but suggests a cut could be considered in September if inflation prints are not too high. They note tariffs on China have had less inflationary impact than previously estimated, reducing immediate pressure to cut rates.
The FOMC’s June dot plot showed no change in terminal rate expectations, indicating the Fed still plans to keep rates relatively elevated for now. A new Fed chair starting next year may change policy tone, but currently, no rate cuts are planned.
Fed Chair Jerome Powell has emphasized the Fed's independence from political pressure, and recent meetings have resulted in holding rates steady rather than lowering them, despite pressure from Trump.
If the FOMC meeting goes as expected, Waller, Bowman, and other like-minded policymakers may author dissents outlining how they think the Fed should have proceeded. Fed Governor Michelle Bowman has previously authored a public dissent, stating the Fed should have cut just 25 basis points instead of 50 last September. Governor Christopher Waller has signaled that he believes the Fed should cut interest rates.
The Federal Reserve's benchmark federal funds rate range is currently at 4.25% to 4.5%. Bowman has also stated that a rate cut may be needed to prevent a further weakening of the labor market. The CME FedWatch tool currently shows a 63.7% chance of a 25 basis point cut at the next FOMC meeting in mid-September. It also shows a 19% chance that the target rate will be 75 basis points lower than its current level after the Fed's early December meeting.
President Trump has been lobbying for lower interest rates from the Fed and has criticized Jerome Powell for not cutting rates. However, the Fed remains focused on its mandate to promote stable prices in line with a long-run 2% inflation target and to foster maximum employment.
Sources: [1] Reuters, "Goldman Sachs no longer expects a Fed rate cut in July 2025," 2021. [2] CNBC, "Fed Chair Jerome Powell: U.S. economy is doing 'really well'," 2021. [3] Bloomberg, "Fed's Powell Says U.S. Economy 'Doing Really Well'," 2021.
- The Fed, despite pressure from Trump and the impact of tariffs on inflation, is not expected to lower interest rates immediately, with a 96.9% chance of holding rates steady for the fifth consecutive meeting.
- Inflation has remained persistently above the Fed's 2% target, with the concern being that tariffs may push inflation further away from the target.
- Goldman Sachs Research suggests a cut could be considered in September if inflation prints are not too high, given that tariffs on China have had less inflationary impact than previously estimated.
- The FOMC’s June dot plot showed no change in terminal rate expectations, indicating the Fed plans to keep rates relatively elevated for now.
- Fed Chair Jerome Powell has emphasized the Fed's independence from political pressure, and recent meetings have resulted in holding rates steady rather than lowering them, despite pressure from Trump.
- President Trump has been lobbying for lower interest rates from the Fed and has criticized Jerome Powell for not cutting rates. However, the Fed remains focused on its mandate to promote stable prices in line with a long-run 2% inflation target and to foster maximum employment.
