Powell remains firm: Fed keeps interest rates high despite Trump pressure!

Powell remains firm: Fed keeps interest rates high despite Trump pressure!

In a current period of economic turmoil, Federal Reserve (Fed) President Jerome Powell has made it clear that there is no urgent need to quickly change monetary policy. He said this during a hearing before the Financial Services Commission in the US House of Representatives. Powell emphasized that the Fed will wait to see how economic conditions develop before considering adjusting interest rates. His statements have disappointed critics, particularly President Donald Trump, who wants interest rates to be cut quickly. The Fed's key interest rate is currently between 4.25 and 4.5%.

As far as financial conditions are concerned, the Fed is highlighting the risks that could arise from new tariffs and volatile oil prices. As Powell faces the challenges of managing inflation, the political landscape is tense. Trump and some Republicans close to Congress are dissatisfied with the Fed's policies and are calling for an interest rate cut of two to three percentage points. The president has said high interest rates are costing the U.S. billions and has repeatedly expressed dissatisfaction with Powell, even nicknamed him "M. Trop Tard" because of the central bank's delayed action.

Turbulent times for the Fed

The differences within the Fed itself are just as noticeable. While some members, such as Gov. Christopher Waller and Vice President Michelle Bowman, have floated a rate cut to keep inflation under control, there are also warnings that such a rate cut could be risky. Because lower interest rates, while they stimulate the economy in the short term, could increase the risk of uncontrolled inflation in the long term.

However, the bigger picture is complicated: geopolitical tensions, particularly the conflict between Israel and Iran, are casting their shadow on markets and could have a negative impact on oil prices, which is not insignificant in the context of inflation. According to forecasts from Oxford Economics, oil prices are likely to fall unless there is a military conflict that affects the energy infrastructure.

A balancing act in uncertain times

With unemployment at 4.2%, historically low, and inflation at 2.3%, slightly above the Fed's 2% target, Powell is running out of time. The consumer sentiment report for June already shows a decline in consumer confidence, indicating possible uncertainty among the population caused by inflation. This mix of economic and political factors presents Powell with the challenge of maintaining the Fed's independent role while trying to stabilize economic conditions.

In the end, the question remains how long the Fed can maintain this balance. Trump has indicated he has no plans to fire Powell, which could keep tensions at some level. Still, the relationship between the Fed and the White House is strained and could face further strain in the coming weeks. Maintaining the Fed's independence, as Powell wants, will be crucial to providing a solid foundation for the central bank's credibility and its handling of inflation and interest rate policy.