Fed set to ignore pressure from Trump with new pause in rate cuts

This week’s meeting of the Federal Reserve’s monetary policy committee, scheduled for this Tuesday and Wednesday, will be the first since President Donald Trump declared a trade war on dozens of countries with tariffs that he later put on hold, waiting for agreements that are dragging on. In this environment of uncertainty, market volatility and negative indicators such as the contraction of GDP in the first quarter (the first in three years), investors are assuming that Fed chief Jerome Powell will maintain the pause in interest rate cuts, which he last cut last December.

If the forecast pans out, it will be a new challenge by Powell to Trump, an act of resistance to the pressures of the president, who is worried about the slowdown that his aggressive trade policies may cause in the U.S. economy and is anxious for a rate cut. Powell is supported by the robust performance of inflation and the latest employment data, which was better than expected: the economy generated 177,000 jobs in April, leaving the jobless rate at 4.2% and evidencing that Trump’s erratic trade policies have not yet affected the labor market, cooling expectations for near-term interest rate cuts. The question is how short that time frame will be.

After all, that is the Fed’s dual mission, to which Trump’s tariffs add an undesirable complexity: to promote maximum employment and ensure price stability. Lowering rates would boost the economy, but could affect inflation. The opposite would be worse for employment. At this unclear juncture, the Fed seems to be leaning toward a prudent “wait and see” policy. Moreover, Powell has repeatedly signaled that he prioritizes curbing inflation over other emergencies.

The meeting also comes shortly after Trump’s latest attack on Powell himself. In the middle of last month, the president reacted to the expectation of a rate cut by the European Central Bank by lashing out at the Fed chairman, “who is always too late and wrong,” he said. “Powell’s termination can’t come fast enough,” Trump wrote in a message on his social network, Truth. The law does not allow the U.S. president to fire Powell before the end of his term in May 2026, although at this point it is hard to know what is and isn’t possible, in light of the push to expand executive power displayed by the current administration.

A few days later, Trump backtracked, saying he did not plan to oust Powell. “I would like to see him be a little more active in terms of his idea to lower interest rates,” Trump said Tuesday. In an interview Sunday on NBC’s “Meet the Press” with moderator Kristen Welker, the president insisted: a change at the helm of the Fed is not in his plans.

An old dispute

The dispute between the two goes back a long way. In February 2024, then-candidate Trump accused Powell, whom he himself appointed during his first term, of adjusting his decisions with the aim of favoring a reelection of Joe Biden, then the Democratic candidate. In his first appearance after Trump’s electoral triumph in November, Powell warned that he did not intend to resign.

Two days after the White House imposed tariffs on dozens of countries that it insists on erroneously defining as “reciprocal,” Powell warned that he feared their economic effects would translate into lower growth and higher inflation.

If this week’s expectations are met, the next inevitable question is how long the pause in interest rate cuts will last. The rate is currently in the 4.25%-4.50% range after a one-point cut between September and December. Regarding the outlook for the next meeting in June, opinions are divided among the leading analysts. Citi expects the first cut by then, although everything will depend on the signals sent by the labor market. Tiffany Wilding, an economist at Pimco, said that she doesn’t expect a cut until later this year, once the data has shown a concrete slowdown or contraction in the labor market. “Once the Fed takes the plunge, we expect the central bank to continue lowering rates into 2026,” she added.

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