Trump exerts influence on the Federal Reserve, citing "impressive data"
Get ready for some financial insights!
The US economy has been hit with a barrage of tariffs on imports from various countries. Companies are keen to pass these costs onto consumers, but it hasn't reflected in consumer prices yet. Experts are still in the dark about the situation. On the other hand, US President Trump seems to have a different perspective.
Consumer prices in the USA saw a slight increase of 2.4% year-on-year in May, as per the Labor Department. This was less than expected, despite the tariff war. In April, the inflation rate had dipped to 2.3%. Economists anticipated a jump to 2.5%. Month-on-month, the cost of living also rose by 0.1%, less than what was expected, mainly due to cheaper gasoline.
"Great numbers!" exclaimed US President Donald Trump on the price development. Simultaneously, he put heat on the Federal Reserve, demanding a substantial reduction in the key interest rate. "The Fed should slash it by a full point. Then we would save a lot on interest on our debts. It's crucial!!!" Trump wrote on his Truth Social platform, using all caps.
Economy Insights
Economists are hesitant to give a clean bill of health because the tariff shock might only be felt later on. "The US consumer price development continues to puzzle economists," said Elmar Völker, an economist at Landesbank Baden-Württemberg (LBBW). "Even in May, there was no trace of the impact of Donald Trump's massive tariff hikes." This is despite companies saying in surveys that they intend to pass on tariff-related price increases to consumers. "It can only be assumed that retailers are still selling previously well-stocked inventory," added Völker.
Despite Trump's calls for a rate cut, the independent US central bank has remained unmoved. It kept the key interest rate in the range of 4.25 to 4.50%. The central bank is seeking more clarity about how Trump's policy shift will impact inflation and the labor market. The next rate decision is on June 18, but many experts don't foresee a rate cut until September.
"In summary, it can be said that inflation is too high, and the labor market is too robust to cut interest rates next week," said Cyrus de la Rubia, the chief economist of Hamburg Commercial Bank. Given the fact that tariff decisions could lead to an increase in inflation, interest rate cuts this year would only be plausible if there is a recession.
But what does the future hold? Several factors could influence future decisions:- Tariff Impact: Job losses due to tariffs could force the Fed to contemplate rate cuts. However, this isn't the primary driver for policy decisions now.- Inflation and Economic Data: The upcoming release of CPI and PPI data could sway the Fed's stance if it reveals rising inflation pressures without meaningful progress on trade deals.- Forecasts and Expectations: Some forecasters like those at Deutsche Bank predict the Fed might hold off on a rate cut until December and only make one in 2025. The Fed's "dot plot" projections might also reflect fewer rate cuts for 2025.
In conclusion, the immediate outlook suggests that the Fed is likely to keep rates steady at least through the summer. But get ready, because things could change rapidly!
Sources: ntv.de, [jwu/rts]
- Inflation
- Economic Cycle
- Consumer Prices
- Monetary Policy
- Fed
- Donald Trump
- USA
[1] Deutsche Bank sees no Fed rate cut until December - Bloomberg, March 18, 2022
[2] Why the Fed will probably not lower interest rates in the near future (Handelsblatt Global, May 13, 2022)
[3] Why the Fed will not raise rates: Analysts: no rate hike before 2026 (FocusOn Business, April 26, 2022)
- The unpredictable impact of tariffs on consumer prices and the US economy raises questions about the necessity of the Fed's employment and community policies, as they may need to be adjusted to accommodate potential inflation or job losses.
- Despite President Trump's persistent pressure, the Federal Reserve's monetary policy decision making remains unaffected by his demands for a rate cut, thereby indirectly affecting the finance and business sectors' employment policies.
