President Donald Trump has repeatedly pressured Federal Reserve Chair Jerome Powell to lower interest rates, escalating tensions by publicly calling for Powell’s termination. Trump argues that cutting rates would stimulate the economy, citing falling oil prices and claiming tariffs are boosting U.S. wealth. However, Powell has warned that Trump’s sweeping tariff policies are likely to increase inflation and slow economic growth, creating a challenging scenario for the Fed’s dual mandate of price stability and maximum employment.
Trump’s Position
Trump has criticized Powell for being “too slow” and “wrong” on monetary policy, accusing him of playing politics by not cutting interest rates. In posts on Truth Social, Trump claimed that lower rates are needed as tariffs “transition” into the economy, asserting that the U.S. is “getting rich on tariffs” and that inflation is declining (despite data showing otherwise). He has even suggested Powell’s “termination cannot come fast enough,” reigniting concerns about the Fed’s independence, a norm Trump has historically challenged.
Powell’s Warnings
Jerome Powell, in speeches on April 4 and April 16, 2025, emphasized that Trump’s tariffs—described as significantly larger than anticipated—are likely to lead to higher inflation and slower economic growth. Tariffs, such as a 10% baseline on all U.S. imports and up to 145% on Chinese goods, are expected to raise consumer prices, potentially causing a temporary or even persistent rise in inflation. Core inflation was at 2.8% in February 2025, above the Fed’s 2% target.
The tariffs could weaken growth by disrupting supply chains and reducing consumer and business confidence. The Fed lowered its 2025 growth forecast to 1.7% from 2.1%. Powell noted the risk of stagflation—a combination of rising inflation, higher unemployment, and stagnant growth—last seen in the 1970s. This would put the Fed in a bind, as raising rates to curb inflation could exacerbate unemployment, while cutting rates to boost growth could fuel inflation.
Powell advocated a “wait-and-see” approach, keeping the Fed’s benchmark rate at 4.25–4.5%. He stressed the need to monitor data to ensure inflation expectations remain anchored and avoid a one-time price increase becoming sustained inflation. Trump’s tariffs include 25% duties on steel, aluminum, and goods from Mexico and Canada, a 145% duty on Chinese imports, and a 10% baseline tariff on all imports, with some exemptions for electronics. Retaliatory tariffs from China (34% on U.S. goods) and threats from the EU have escalated global trade tensions.
U.S. stock markets have plunged, with the Dow dropping 1,600 points on April 4 and the S&P 500 falling 4.5%, marking some of the worst trading days since 2020. Global markets also slid, reflecting fears of a trade war and potential recession. Despite tariff concerns, the economy remains solid, with a 4.2% unemployment rate and 228,000 jobs added in March 2025. However, consumer confidence hit its lowest level since January 2021, and small-business uncertainty spiked.
Fed’s Dilemma and Independence
The Fed faces a delicate balancing act. Cutting rates, as Trump demands, could exacerbate inflation, especially if tariffs drive persistent price increases. Conversely, maintaining or raising rates to combat inflation risks further slowing growth and raising unemployment. Powell has emphasized the Fed’s independence, refusing to engage with Trump’s political remarks and focusing on data-driven policy. Economists like Kathy Bostjancic of Nationwide argue the Fed is unlikely to cut rates soon, predicting a pause until Q4 2025 as inflation accelerates. Others, like Chicago Fed President Austan Goolsbee, highlight the lack of a clear playbook for navigating stagflationary shocks.
While Trump’s tariffs aim to boost U.S. manufacturing and correct trade imbalances, the consensus among economists and Powell is that they risk backfiring by raising costs for consumers and businesses, disrupting global trade, and potentially triggering a recession. Trump’s claim that tariffs are reducing inflation contradicts data showing inflation at 2.8% and rising goods prices. His pressure on the Fed undermines its independence, a cornerstone of stable monetary policy. On the other hand, Powell’s cautious approach may be prudent but could be criticized for underestimating the need for preemptive action in a volatile trade environment. The lack of modern precedent for such large-scale tariffs (the Smoot-Hawley tariffs of 1930 being the closest parallel) adds uncertainty to forecasting outcomes.
Trump’s push for lower interest rates and Powell’s warnings about tariff-driven inflation and slower growth highlight a fundamental policy clash. The Fed’s decision to hold rates steady reflects caution amid unprecedented trade disruptions, but the risk of stagflation looms large. The coming months will be critical as tariff effects materialize, potentially forcing the Fed to make tough choices between fighting inflation and supporting growth. For now, Powell’s focus remains on anchoring inflation expectations while navigating an economy facing significant uncertainty.
