Here's the Scoop on the US Fed's Interest Rate Standoff with President Trump
Heading on a collision path with Trump: Federal Reserve refrains from altering interest rate - Heading towards a clash with Trump: The Fed resists adjusting interest rates
The US Federal Reserve (Fed) has kept its interest rate at a stubborn 4.25 to 4.5 percent, setting the stage for another showdown with Donald Trump. The central bank's decision, announced in Washington, comes as analysts had anticipated such a move. Trump, in his typical fashion, had been urging for lower interest rates in recent weeks. The Fed defended its decision, citing increased risks of higher inflation, possibly alluding to Trump's aggressive trade policy.
Trump one-upping Fed Chair Jerome Powell
Trump, the Republican firebrand, has repeatedly taken aim at Fed Chair Jerome Powell in recent weeks. His latest salvo? "I reckon I know more about interest rates than he does." The Fed operates independently of the US government, and Powell made it clear in his recent appearances that a quick interest rate cut is unlikely. The primary reason for this stance is the uncertainty surrounding Trump's aggressive trade policies.
Trade Wars and Inflationary Pressure
Since stepping into the Oval Office, Trump has imposed hefty tariffs on goods from various countries. This uncertainty about the potential consequences of such an aggressive approach is one of the strongest drivers of inflation. Despite a recent significant drop in U.S. inflation, consumer prices in March increased by 2.4 percent year-on-year, compared to 2.8 percent in February. It remains to be seen if this trend continues, especially considering that March was the month before Trump's wide-ranging tariff package.
Fed's Inflation-fighting Strategy
The Fed's mission is to keep inflation in check, aiming for an inflation rate of 2 percent. High interest rates serve as a tool against rapidly rising consumer prices, as expensive loans suppress demand, which ideally leads to companies being less aggressive with their price increases. On the flip side, higher interest rates provide an incentive to save, which could slow down economic growth.
April 2022 Rate Hike and Future Projections
The Fed initiated a rate hike of 0.5 percentage points in September 2022, as inflation soared. In the subsequent two months of November and December, two smaller steps of 0.25 points each followed. Since then, the Fed has left the prime rate unchanged despite persistent inflation. The Fed predicts the prime rate to average 3.9 percent in 2025, indicating two small rate hikes this year.
Trump's Economy Boost through Low Interest Rates
This stance puts the Fed and Trump on a collision course, as the President is a long-time advocate of low interest rates. He believes that this would support stock markets, make government borrowing cheaper, and spur economic growth. However, the US economy unexpectedly shrank in the first quarter of 2025, a development that caught experts off guard. Trump attributed this to the impact of his predecessor Joe Biden's economic policies, but experts believe that Trump's trade policy will have a negative impact on the economy in the coming months and drive up prices. Trump brushes off concerns about high tariffs.
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- Amidst the ongoing collision course between Donald Trump, the United States President, and the Federal Reserve's Chief Jerome Powell, the Republican leader persisted in advocating for lower interest rates, asserting, "I reckon I know more about interest rates than he does."
- The trade policy of the Republican administration, marked by aggressive tariff measures, has instigated a potential general-news topic as experts debate the impact of high tariffs on the economy's economic recovery and business landscape, as well as the role of the Finance sector in mitigating inflationary pressure.
