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Federal Reserve Faces Political Pressure Amid Uncertain Economic Outlook
The Federal Reserve is expected to maintain its current interest rate policy during its upcoming meeting, despite growing pressure from President Donald Trump. The central bank has been closely monitoring the economic effects of the president’s tariff policies, which have created uncertainty in global markets.
Since the start of the year, the Fed has kept the benchmark lending rate steady at a range between 4.25% and 4.50%. This decision reflects the central bank’s cautious approach as it evaluates how Trump’s trade policies are influencing inflation and the broader economy. The president’s inconsistent tariff strategy has made it difficult for the Fed to predict the long-term impact on prices and economic growth.
Trump has repeatedly criticized Fed Chair Jerome Powell, calling him a “numbskull” and “moron” for not lowering rates further. The president has also suggested that the Fed’s $2.5 billion renovation project could be used as leverage to remove Powell from his position. However, Trump later backed down from this threat, indicating that such an action is unlikely.
During a recent visit to the Fed’s construction site, Trump made a tense appearance with Powell, where the Fed chair disputed the president’s claims about the cost of the refurbishment. Despite these tensions, economists believe the Fed will prioritize data over political pressure when making its decisions.
“We’re just now beginning to see the evidence of tariffs’ impact on inflation,” said Ryan Sweet, chief US economist at Oxford Economics. “We’re going to see it (too) in July and August, and we think that’s going to give the Fed reason to remain on the sidelines,” he told AFP.
Tariffs and Their Impact on Inflation
Since returning to the presidency in January, Trump has imposed a 10% tariff on goods from nearly all countries, along with higher rates on steel, aluminum, and autos. While the effect on inflation has so far been limited, the president has used this as a justification for pushing the Fed to lower interest rates by three percentage points.
Lower interest rates would reduce the government’s borrowing costs, according to Trump. He has also floated the idea of firing Powell, which caused significant market volatility. Analysts suggest that the president’s comments were a “trial balloon” designed to test reactions before retracting the proposal.
“It showed that markets value an independent central bank,” Sweet noted, adding that Powell is more likely to focus on labor market conditions rather than political pressures.
Labor Market Concerns
Analysts expect some Fed officials to dissent if the central bank decides to keep rates unchanged for the fifth consecutive meeting. However, this does not necessarily indicate a loss of control over the board.
Fed Governor Christopher Waller and Vice Chair for Supervision Michelle Bowman have both expressed openness to rate cuts as early as July, suggesting their disagreement with maintaining the current rate would not come as a surprise.
Kathy Bostjancic, chief economist at Nationwide, warned that too many dissents could raise concerns about Powell’s leadership. However, she does not anticipate this to be the case.
For Sweet, the biggest uncertainty lies in the labor market. There has been weakness in the private sector, with hiring rates below average and an increase in permanent job losses. “There are some fissures in the labor market, but they haven’t turned into fault lines yet,” he said.
If the labor market deteriorates suddenly, Sweet expects the Fed to consider cutting interest rates sooner than anticipated. This highlights the delicate balance the central bank must strike between controlling inflation and supporting employment.
