Background on Key Figures and Institutions
The Federal Reserve (Fed), led by Chair Jerome Powell, maintained interest rates for the fourth consecutive meeting amidst President Donald Trump’s pressure to lower them. The Fed’s benchmark interest rate remains between 4.25% and 4.5%, with expectations of two more reductions by year’s end.
Trump’s Criticism of Powell
President Trump has repeatedly criticized Powell, calling him “Mr. Too Late” for not lowering interest rates promptly. Trump believes that if the Fed had acted sooner, it would benefit the country by reducing borrowing costs. He has also accused Powell of being politically motivated and costing the U.S. “a fortune” compared to the European Central Bank’s monetary policy.
The Dual Mandate of the Fed
The Federal Reserve has a dual mandate: maintaining low inflation and promoting maximum employment. By adjusting the federal funds rate, the Fed influences demand for goods and services.
Powell has emphasized that the Fed will “wait and learn” before making any changes to interest rates, given the uncertainty surrounding tariffs’ impact on inflation.
“We Will Make Better Decisions by Waiting”
Powell did not directly address Trump’s criticisms but stressed the importance of patience in assessing tariffs’ effects on inflation. The Fed maintained its benchmark rate range of 4.25% to 4.5%, and forecasted two interest rate cuts this year, consistent with previous projections.
Powell highlighted that no one holds these interest rate paths with “great conviction,” and all will depend on incoming data. He acknowledged that recent low inflation is a “look-back” signal, but anticipates significant inflationary pressures in the coming months due to tariffs.
Lower Growth and Higher Inflation
The Fed revised its economic projections, expecting GDP growth of 1.4% this year (down from 1.7% in March and 2.1% in December 2024) and an inflation rate of 3.0% (up from 2.7% in March).
Unemployment is projected to rise to 4.5% from the previously expected 4.4%, according to updated forecasts following the Federal Open Market Committee meeting.
No Action Until September
Market expectations are for no interest rate changes until at least September, as the Fed awaits greater clarity on tariffs’ economic impact during the summer. Economists like Diane Swonk and Ryan Sweet from KPMG and Oxford Economics, respectively, suggest that the Fed will require evidence of inflation returning to its 2.0% target before cutting rates.
Key Questions and Answers
- Who is Jerome Powell? Jerome Powell is the Chair of the Federal Reserve, appointed by President Trump in 2017.
- What is the Federal Reserve’s dual mandate? The Fed aims to maintain low inflation and promote maximum employment.
- Why did Trump criticize Powell? Trump believes that Powell should lower interest rates more aggressively to benefit the economy.
- What are the revised economic projections by the Fed? The Fed now expects 1.4% GDP growth, 3.0% inflation rate, and a rise in unemployment to 4.5%.
- When will the Fed likely make changes to interest rates? The Fed is expected to wait until at least September for more clarity on tariffs’ economic impact.
