Trump vs. Powell: Interest rate policy is causing excitement in the economy!

Trump vs. Powell: Interest rate policy is causing excitement in the economy!

US President Donald Trump met with Federal Reserve Chairman Jerome Powell today. This was the first meeting of his second term. Trump expressed sharp criticism of Powell and accused him of making a mistake by not lowering interest rates. The US President argued that the high interest rates would put the US at an economic disadvantage compared to countries like China. Powell defended the independence of the Federal Reserve (Fed) and emphasized that the central bank's assessments are based solely on economic information and its implications.

Since Trump took office four months ago, he has been calling for a reduction in key interest rates to give banks cheaper access to money and to stimulate investment. During the meeting, Trump even called Powell a “big loser” and threatened to fire him. Background: At the Fed's last meeting at the beginning of May, the key interest rate remained in the range of 4.25 to 4.5 percent. This decision was justified by the inflation risks and economic uncertainty caused by Trump's tariff policies.

Inflation and economic uncertainties

The Federal Reserve faces challenges in its future interest rate decisions. A survey of economists from the Financial Times and the University of Chicago Booth shows that a more cautious rate cut is seen as likely. This is due to concerns that the Trump administration's policies, particularly the imposition of sweeping tariffs, could fuel inflation. Economists have raised their forecasts for the key interest rate next year, and rates are expected to be 3.5 percent or above by the end of 2025.

A possible discount of a quarter of a percentage point could reduce the key interest rate to 4.25 to 4.5 percent, but the risk of increasing inflationary pressures remains. Jonathan Wright, a former Fed economist, warns that the Fed faces major challenges in meeting its inflation target. In addition, Tara Sinclair of George Washington University sees the possibility of a longer pause after a rate cut in December, which could increase uncertainty in monetary policy.

Conflicts with the new government

The Fed also needs to brace for potential conflict with the Trump administration if high interest rates are needed to control inflation. Trump's economic plans, which include an expansion of tariffs, pose a risk to growth and a rise in inflationary pressures for many economists. While no recession is expected in the coming year, the long-term consequences of Trump's economic policies, particularly the possible negative effects on the economy, are a central topic of discussion among experts.

As the Fed's Austan Goolsbee noted, a rate cut could be explored if Trump permanently cuts tariffs. Meanwhile, a US court recently blocked most of Trump's tariffs, which Leavitt called "patently wrong." The government is betting on a victory in the next instance, while the Fed has to rethink its interest rate policy strategy.

The current situation is characterized by the Fed's increased sensitivity to inflation issues, which has been exacerbated by the economic impact of the pandemic, experts point out.

For more information about current interest rate policy and associated economic challenges, you can read articles from Yahoo News here and Investment Week here read.