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Your Guide to What Trump’s Second Season Means Washington, Business and World
Last week was particularly tested for Jay Powell. Donald Trump has resumed criticism of the US Federal Reserve Chairman for not cutting interest rates faster by describing him as a “silly person.” On Wednesday, US media reported that the president could nominate a new chair in May 2026 well before Powell’s term expires. The White House later said the announcement was “immediate,” helping to curb the dollar sale. Rumors about his work concluded the week that began with other members of the Fed’s pricing committee pushing for cuts.
If Trump wants to cut interest rates, his intervention and a confused policy agenda have not helped his cause. First of all, if the president reveals his successor to Powell before his term passes, it raises a worrying prospect for a “shadow breeding chair” that can point to a more incredible direction in fees from bystanders. It causes disruption in the market and distorts the communication of monetary policy. For now, we are also promoting speculation about loosening in future policy stances. As recent market movements have shown, it weakens the dollar and increases cases at higher rates at margins.
Secondly, there is the immediate uncertainty regarding the President’s tariff policy. At the meeting in mid-June, the Fed held at 4.25-4.5 percent. But the policymakers were divided into places to go next. Two rate setters recently, including key candidate Christopher Waller, to replace Powell, said the Fed should consider cutting soon next month. After all, there has been a slight increase in US inflation measurements since the president’s April 2nd tariff announcement. High rates limit growth. Credit card delinquency is the highest in over 10 years, and annual job pay growth is the lowest jointly in four years.
But Powell’s attention is wise. Friday’s data showed the Core Personal Consumption Expenditures Index (Fed’s preferred inflation measure) rose to 2.7% in May. Certainly, it is too early to determine the impact of tariffs on inflation. First, US companies still work through imported stockpiles. Price pressures from existing tariffs may not appear in inflation numbers until the summer months. In that case, the Fed is in a better position to understand how it is passing higher missions through the supply chain.
Secondly, Trump’s complete tariff package has not yet been a hit. It is unclear what obligations will win after July 9th, when the president’s deadline for trading partners to renegotiate his “liberation date” tariffs expire. When these taxes take effect, they push prices even further. The administration is also pondering additional sector-based tariffs. Other price pressures could also build up. Global oil prices remain subject to a fragile ceasefire between Israel and Iran. Trump’s taxation “Big Beautiful Bill” could add more price pressure.
If tariffs, consumer passthroughs and wider price shocks are surprising at the benefits, there is a risk that inflation will persist, rather than a one-off jump at the price level. After all, Americans have experienced price growth above target for over four years, and annual inflation expectations continue to rise. However, if tariff implementation is delayed and uncertainty remains, demand may drop faster, which could raise cases of reductions.
For now, holding rates feels like the safest option given all the uncertainty. However, that means there is a high risk of policy errors. If central banks make it clearer about the scope and timing of tariffs, and the timing of the president’s broader agenda, it is in a much better position to see the risk of cutting faster. The President will do well to recognize that the Fed’s face is primarily one of his own works.
