Trump summons Fed’s Powell to tell him he’s wrong on rates
U.S. President Donald Trump called Federal Reserve Chair Jerome Powell to the White House on May 29 for their first face-to-face meeting since he took office in January and told the central bank chief he was making a “mistake” by not lowering interest rates.
The Federal Reserve released new economic projections on June 18, forecasting higher inflation and slower economic growth than previously anticipated amid shifting trade, immigration, fiscal and regulatory policies.
And Fed Chair Jerome Powell warned price increases could dampen the summer for Americans nationwide.
Annual consumer price increases are expected to hit 3% this year, up from March’s prediction of 2.7%. Expectations for gross domestic product growth fell from 1.7% in March to 1.4%. And the Fed anticipates unemployment to hit 4.5% at year-end, up from March’s 4.4% prediction and the current rate of 4.2%.
Still, the Fed was in no rush to cut rates amid other signs of positive economic data, and economists are mixed on when they think the central bank will make its next rate cut. Powell highlighted a “pretty good” labor market with low unemployment during a press conference following the Fed’s June 18 meeting.
The Fed held its benchmark short-term rate steady at a range of 4.25% to 4.5% as inflation remains elevated compared to its 2% goal. Its forecast for two cuts this year remained unchanged, although officials are projecting just one rate cut in 2026, down from two.
Fed sticks to wait-and-see approach
Opinions on when the Fed will cut rates vary.
Troy Ludtka, senior U.S. economist at SMBC Nikko Securities Americas, expects the Fed to cut rates “faster and by more than they currently anticipate,” according to a June 18 note.
JPMorgan Chase’s Michael Feroli expects only one rate cut this year, after the Fed’s December meeting. Oxford Economics chief U.S. economist Ryan Sweet also expects the next rate cut to be in December, although he believes risks are shifting toward a “larger, rather than sooner,” cut.
“From the Fed’s perspective, layoffs are key, and as long as they remain low, the pressure to cut interest rates won’t intensify,” Sweet said in a June 18 note.
Paul Ashworth, chief North America economist at research firm Capital Economics, expects the Fed to remain on the sidelines “for some time” and hold off on rate cuts until the first half of next year.
President Donald Trump’s tariffs – which are expected to both stoke inflation and hamper economic growth – pose a unique challenge for the central bank, which is tasked with keeping inflation low and employment rates high.
So far, the bank has taken a wait-and-see approach to rate cuts see how the new trade policy shakes out. June was the Fed’s fourth meeting in a row without rate cuts after a series of cuts at the end of 2024.
While there has been political pressure to make cuts – particularly from Trump, who early June 18 hurled more insults at Powell – Powell said the Fed’s monetary policy stance leaves it “well-positioned to respond in a timely way to potential economic developments.”
Cutting rates too soon could stoke inflation, which already sits above the Fed’s 2% target. But there’s also risk in waiting too long, which could hurt the labor market and slow economic growth.
“We will continue to determine the appropriate stance of monitory policy based on the incoming data, the evolving outlook and the balance of risks,” Powell said.
When will higher prices hit?
Tariffs were a major talking point after the meeting, with Powell warning that they may soon lead to higher prices for consumers and weigh on economic activity.
In particular, Powell warned of increases over the summer months.
“The cost of the tariff has to be paid, and some of it will fall on the end consumer,” he said. “That’s what businesses say… So we know that’s coming.”
While the effects of Trump’s tariffs on inflation have so far been more subdued than anticipated, Powell warned that it could take time for price increases to filter their way to consumers, with some retailers’ goods imported months before the new tariff rates went into effect.
“It takes some time for tariffs to work their way through the chain of distribution to the end consumer,” Powell said. “So we’re beginning to see some effects. We expect to see more.”
Powell said uncertainty around tariffs has fallen since its peak in April, when Trump announced sweeping 10% tariffs. But it’s still not clear if their effect on inflation will be short-lived or more persistent.
“One of our jobs is to make sure that a one-time increase in inflation doesn’t turn into an inflation problem,” Powell said. “And that will depend on the size of the effects, how long it takes for them to come in, and ultimately on keeping inflation expectations anchored.”