- President Trump has sharply criticized Fed Chairman Jerome Powell for refusing to cut interest rates, urging Congress to press Powell on his decision as he testifies this week, while arguing that other central banks have already eased policy and that lower rates would benefit the U.S. economy. Despite political pressure and criticism from some economists, Powell and the FOMC have maintained their stance, citing the need for more data to ensure that lowering rates would not jeopardize their dual mandate of maximum employment and stable inflation.
In the midst of brokering a ceasefire in the Middle East, President Trump has still found time to lambaste Jerome Powell for refusing to cut the base rate.
The Fed chairman will appear before Congress today and tomorrow, first before the House Financial Services Committee on Tuesday morning and again before the Senate Banking Committee on Wednesday morning.
Powell will be given the chance to justify why he and other members of the Federal Open Market Committee (FOMC) have thus far in 2025 refused to lower the base rate from its current level of 4.25% to 4.5%.
The FOMC chairman has been consistent in his reasoning, distancing himself from political rhetoric, but has still faced criticism from economists who say his relatively tight monetary stance is unjustified.
Trump urged politicians in the two meetings this week to push Powell hard for why he hasn’t cut the base rate—and granted the president his wish.
Writing on Truth Social several hours ago, Trump said: “I hope Congress really works this very dumb, hardheaded person, over. We will be paying for his incompetence for many years to come.”
Trump’s justification for a push to lower the rate is based partly upon the fact that other central banks around the world have begun loosening their own policy, he added: “Europe has had 10 cuts, we have had ZERO. No inflation, great economy—we should be at least two to three points lower.
“Would save the USA 800 Billion Dollars Per Year, plus. What a difference this would make. If things later change to the negative, increase the Rate.”
This push for lower rates is the opposite of Trump’s ask on the campaign trail last year. While running for president, Trump claimed Powell was playing politics and would hand the Biden camp an economic boon if he cut.
Almost as soon as he won the Oval Office, Trump changed tack and began asking Powell to cut—claiming the economy was stable enough to sustain a lower rate and increased economic activity.
This arguably demonstrates why the central bank is federally mandated to be independent, so that a major lever of the economy can be used for the long-term benefit of businesses and consumers as opposed to the whims of the Oval Office.
Powell and the FOMC have been clear on why they don’t want to cut, citing factors which may put the two aspects of their dual mandate—maximum employment and 2% inflation—in conflict.
The key word from the past few meetings has been “clarity”—rather, the members of the FOMC want to wait for more concrete data before beginning to chart a path toward more normalized interest rates.
While the FOMC’s role is not to comment on policy, it has cited political factors such as the inflationary pressures of tariffs and geopolitics.
While the markets may prefer a cut, what really spooks analysts and investors alike is when Trump’s pressure over the base rate bleeds into questions of tampering.
When Trump threatened to fire Powell earlier this year, for example, markets reacted negatively with investors warned to expect a “severe” drop in asset prices if the president did go so far in bringing the Fed’s authority and autonomy into question.
Trump quickly backtracked, saying Powell—who was first appointed by the president in his first term—will sit out his term, due to finish in 2026.
Time for change
While Trump‘s claim—that the FOMC’s refusal to cut the base rate has cost the economy $800 billion—comes without explanation, some economists more widely believe that Powell should not be basing current decisions on potentially inflationary factors down the line.
For example, the Oval Office has changed its stance on tariffs a number of times, be it via 90-day pauses, or agreements with certain nations, or threats of even larger hikes on the likes of the EU.
But experts point out that the sharpest end of these threats has yet to come to fruition, and that both inflation data and employment data have remained fairly flat over the past few months.
Jeremy Siegel, emeritus professor of finance at the Wharton School of the University of Pennsylvania, for example, writes: “Treating a tax-induced price level jump as a reason to stay restrictive is simply bad economics. A 10% sales tax does not warrant monetary tightening; neither does a tariff schedule that is a tax on inputs. The Fed funds rate should already be almost 75 to 100 basis points lower—around 3.5%—to match the economy’s true neutral rate.”
Writing for WisdomTree, where he is a senior economist, Siegel notes that Federal Reserve governor Chris Waller has argued for a potential July rate cut, adding: “Is he auditioning to be Powell’s replacement? I agree with Waller, we’re too far above the neutral rate with tariffs coming.”
