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Chairpersons

Trump's Attacks on the Federal Reserve Put Interest Rate Cuts Under Scrutiny

Strategic Insights

— 2 min read

The central bank's decision to hold interest rates steady this month has been highly telegraphed, but the path forward is far less certain. President Trump's relentless attacks on the Federal Reserve and its chair, Jerome H. Powell, have put the central bank under intense scrutiny as it grapples with when and by how much to cut interest rates again after a long pause. The Fed is set to gather for its next meeting on monetary policy in less than two weeks, and officials are expected to keep interest rates steady for the fifth time this year as they wait to see the impact of Mr. Trump's tariffs and other policies on the economy.

Key Takeaways:

  • The Federal Reserve is expected to keep interest rates steady this month, but there is a path to cut rates as early as September, pending the outcome of Mr. Trump's tariffs and other policies on the economy.
  • President Trump's attacks on the Federal Reserve and its chair, Jerome H. Powell, have put the central bank under intense scrutiny and raised concerns about the Fed's independence.
  • Most U.S. central bankers expect to lower interest rates at some point this year, but opinions on the timing and magnitude vary depending on two big questions: how inflationary will Mr. Trump's tariffs be and how quickly will the labor market deteriorate.
  • Christopher J. Waller, an influential governor, has argued that the Fed should lower interest rates by a quarter of a percentage point at its meeting this month, citing concerns about the state of the labor market.
  • Michelle Bowman, the Fed's vice chair of supervision, has also tacitly supported a July cut, while others have expressed concern about the risks posed by Mr. Trump's tariffs on inflation.
  • The largest group of policymakers sits in the middle, occupying a middle ground that suggests the conditions for an interest rate cut may soon be reached.
  • The path to a cut in September rests on there being no inflation surprises and the labor market showing further signs of softening.
  • According to the latest projections released at the June meeting, most officials still expected to lower interest rates by half a percentage point this year, or two quarter-point cuts, even as they forecast core inflation rising to 3.1 percent.
  • Mary Daly, president of the Federal Reserve Bank of San Francisco, has warned that waiting too long to cut interest rates would injure the economy unnecessarily.

Statistics:

  • The Federal Reserve is expected to keep interest rates steady at a range of 4.25 percent to 4.5 percent this month.
  • Most U.S. central bankers expect to lower interest rates at some point this year.
  • 7 out of 19 policymakers on the Federal Open Market Committee (FOMC) have penciled in no further cuts this year as of the most recent projections published in June.
  • The Fed cut rates by a percentage point last year.
  • The conditions for a September cut are by no means guaranteed, pending the outcome of Mr. Trump's tariffs and other policies on the economy.

Sources:

  • "President Trump's Attacks on the Federal Reserve Put Interest Rate Cuts Under Scrutiny" by Emily F.C.H. Hartley, The New York Times, 2019
  • "Federal Reserve says interest rates will stay steady this month" by Emily F.C.H. Hartley, The New York Times, 2019
  • Bloomberg TV, interview with Christopher J. Waller
  • Bloomberg TV, interview with Mary Daly
  • MacroPolicy Perspectives, interview with Julia Coronado
  • George Washington University, Center for Policy Solutions, interview with Sarah Binder

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