As Trump ramps up attacks on the Federal Reserve, Chair Powell refuses
to change course
[July 02, 2025] By
CHRISTOPHER RUGABER
WASHINGTON (AP) — Federal Reserve Chair Jerome Powell on Tuesday stuck
to his position that the central bank will keep its key rate on hold
while it waits to see how President Donald Trump's tariffs effect the
economy, despite the steady stream of criticism from the White House,
which wants lower borrowing costs.
Powell, speaking in Sintra, Portugal, at a conference hosted by the
European Central Bank, also said that U.S. inflation is likely to pick
up later this summer, though he acknowledged that the timing and
magnitude of any price increase from the duties is uncertain. But he
said the Fed will keep rates on hold while it evaluates the impact of
tariffs on the U.S. economy.
“As long as the economy is in solid shape, we think the prudent thing to
do is to wait and see what those effects might be," Powell said,
referring to the sweeping duties Trump has imposed this year.
Powell's comments underscored the divide between the U.S. central bank's
leader and the Trump administration. Trump has repeatedly urged the Fed
to cut its key rate, which he says would save U.S. taxpayers billions of
dollars on interest costs on the federal government’s massive debt, and
boost the economy. The fight has threatened the Fed's traditional
independence from politics, though since the Supreme Court signaled the
president can't fire the chair, financial markets haven't responded to
Trump's criticism.
The Fed chair also said that without tariffs, the Fed would probably be
cutting its key rate right now. The central bank went “on hold” after it
saw how large Trump's proposed tariffs were, Powell said, and economists
began forecasting higher inflation.
At the same time, Powell did not rule out a rate cut at the Fed's next
policy meeting July 29-30.
“I wouldn't take any meeting off the table or put it directly on the
table,” Powell said. Most economists, however, expect the Fed won't
reduce rates until September at the earliest.
On Monday, the president attacked Powell again and extended his
criticisms to the entire Fed governing board, which participates in
interest-rate decisions.
“The board just sits there and watches, so they are equally to blame,”
Trump said. The attack on the board ratchets up pressure on individual
Fed officials, such as Governor Chris Waller, who have been mentioned as
potential successors to Powell, whose term ends in May 2026.
When asked during a panel discussion with other central bankers what
keeps him awake at night, Powell referred to the fact that there are
just 10 months left in his term.
“All I want and all anybody at the Fed wants is to deliver an economy
that has price stability, maximum employment, financial stability," he
said.
Powell was also asked whether Trump's attacks make his job harder, and
he responded, “I'm very focused on just doing my job.”
The other central bankers onstage, including Christine Lagarde,
president of the European Central Bank, Kazuo Ueda, governor of the Bank
of Japan, and Andrew Bailey, governor of the Bank of England, joined the
audience in applauding Powell's comment.
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Federal Reserve Chairman Jerome Powell speaks during an open meeting
of the Board of Governors at the Federal Reserve, Wednesday, June
25, 2025, in Washington. (AP Photo/Mark Schiefelbein)
 “We would do exactly the same thing
as Jay Powell has done,” Lagarde said. “The same thing.”
On Monday, Trump posted a note on social media that listed 44
countries in order of the interest rates set by their central banks.
The list showed that Switzerland, Cambodia, and Japan have the
lowest short-term rates of 0.25% to 0.5%. “Should be here,” Trump
wrote on the list, referring to the Fed.
Yet central banks typically lower their rates when their economies
are weaker, to boost borrowing and spending and support growth. The
Fed cut its short-term rate to nearly zero during the pandemic for
that reason. It rapidly lifted borrowing costs in 2022 and 2023 to
combat the worst inflation spike in four decades.
Trump has been particularly focused on the idea that Fed rate cuts
would sharply reduce the government's borrowing costs.
Yet it's not necessarily the case that a cut would lower other
borrowing costs for things such as mortgages, car loans, or business
loans. The short-term rate the Fed controls influences other
interest rates, but the markets also play a significant role.
As a result, a rate cut by the Fed wouldn’t automatically lower the
interest rates paid by Treasury securities, particularly longer-term
rates such as the yield on the 10-year Treasury, which strongly
affects mortgage rates.
In fact, when the Powell Fed first cut its short-term rate last
September, the 10-year yield actually rose, lifting mortgage rates
and other borrowing costs.
The Fed has kept its key short-term interest rate unchanged this
year, at about 4.3%, after cutting it three times in 2024.
At a news conference in June, Powell suggested that the central bank
would “learn a great deal more over the summer” about whether
President Donald Trump's sweeping tariffs would push up inflation or
not. The comment suggested the Fed wouldn't consider cutting rates
until its September meeting.
Yet a few days later, Fed governors Waller and Michelle Bowman, who
were both appointed by Trump, said that it was unlikely the tariffs
would lead to persistent inflation. Both also indicated that they
would likely support reducing the Fed's rate in July.
So far, inflation has mostly continued to cool, despite the
imposition of the duties on nearly all U.S. imports. Consumer prices
rose just 2.4% in May compared with a year earlier, not far from the
Federal Reserve’s 2% target and much lower than a year ago.
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