Trump’s Pressure Mounts as Fed Weighs Rate Cuts Amidst Global Uncertainty
Trump’s Pressure Mounts as Fed Weighs Rate Cuts Amidst Global Uncertainty
The Federal Reserve’s upcoming meeting has investors and President Trump on edge. While a rate hike is unlikely, the focus is squarely on the “dot plot”—a chart revealing each Fed official’s interest rate predictions. The March dot plot showed a consensus for two rate cuts in 2025, a prediction repeated from December. This week’s update will reveal if that remains the case amidst escalating global tensions.
Recent events, including Israel’s airstrikes on Iran, have introduced new uncertainty. Higher oil prices and potential inflation are now key concerns. Experts like former Kansas City Fed president Esther George believe the Fed will be hesitant to alter its previously signaled course, given the current volatility. Wilmington Trust chief economist Luke Tilley agrees, expecting minimal changes to the dot plot and narrative.
President Trump, however, is relentlessly pressuring the Fed to cut rates sooner, even suggesting he might “force something.” He’s publicly criticized Chair Jerome Powell, calling him a “numbskull,” and demanding a full percentage point cut. Despite this pressure, Trump has affirmed he won’t fire Powell before his term ends in 2026.
Trump cites low inflation as justification, but Powell and other policymakers remain more concerned about the inflationary impact of Trump’s tariffs. EY-Parthenon chief economist Gregory Daco anticipates Powell will highlight the risk of persistent tariff-driven inflation, acknowledging the difficult trade-offs if inflation remains high while growth and employment soften. He expects Powell to emphasize that the bar for rate cuts remains high, given inflation above the Fed’s 2% target and a strong job market.
Recent inflation data, however, shows milder price increases than expected, even with tariffs in full effect. Treasury Secretary Scott Bessent even claimed there’s “no tariff inflation.” While the job market is cooling, it remains robust, with unemployment at 4.2% and wages rising at nearly 4%, giving the Fed less immediate incentive for a rate cut.
The timing of any potential cuts remains a key question. Investors anticipate the first cut no earlier than September. Former Cleveland Fed president Loretta Mester highlights the uncertainty surrounding the long-term effects of tariffs as the reason for the Fed’s current hold. While some, like Tilley, believe the Fed should leave the door open for a July cut to preemptively address potential economic weakening, others, such as JPMorgan chief economist Michael Feroli, predict a December cut at the earliest, followed by further cuts in early 2026.
Despite the differing opinions, a common thread emerges: the Fed’s decision hinges on navigating the complex interplay between political pressure, global uncertainty, and the evolving economic landscape. The upcoming dot plot release will offer critical insights into the Fed’s strategy and its response to the pressures it faces.
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