Experts say the Federal Reserve is unlikely to cave to President Donald Trump’s demands for lower interest rates amid the administration’s aggressive reset of global trade relationships.
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“The primary reason for the delay in cuts is inflation uncertainty from tariffs and the administration’s trade policy in general,” explained Jai Kedia, a research fellow at the Cato Institute’s Center for Monetary and Financial Alternatives.
“Such tariffs act as supply shocks because they lower overall output and employment and elevate prices. As a result, they give contrary indications to the Fed, making rate decisions harder,” Kedia added.
Trump and Treasury Secretary Scott Bessent have repeatedly called for cutting rates in order to ease the government’s interest cost burden, a move that the president says will save the country “hundreds of billions of dollars.”
Trump has also threatened to replace Federal Reserve Chair Jerome Powell over the matter. Fed Governor Christopher Waller and Fed Vice Chair for Supervision Michelle Bowman, both reported candidates for Powell’s job, have recently called for rate cuts this year.
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But Powell has held the central bank’s key borrowing rate in a range between 4.25%-4.5%, citing a wait-and-see monetary policy approach as Trump rolls out fresh tariffs weekly.
Over the weekend, Trump announced plans to impose a 30% tariff on imports from Mexico and all 27 European Union member states. Those tariffs, slated to take effect on Aug. 1, add to the more than 20 countries already facing similar measures.
Powell, who was appointed to the role in 2017 by Trump, told lawmakers last month that he believed the U.S. economy was in a “solid position.”
During testimony before the House Financial Services Committee, Powell cited lower inflation and unemployment figures as key indicators in the decision to hold at the current rate.
Meanwhile, the benchmark U.S. Treasury 10-year ticked about one basis point higher to 4.437% while the 30-year bond yield rose about two basis points to 4.979%. Long-term Treasury yields are influenced by inflation expectations and economic growth forecasts.
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EJ Antoni, chief economist at the Heritage Foundation, a conservative-leaning think tank, says the contentious relationship between Powell and Trump may also be a factor in the Fed’s decision not to cut rates at the forthcoming Federal Open Market Committee in July.
“Given the animosity between Powell and the president, it seems unlikely we’ll get any rate cuts this year,” said Antoni.
Antoni points to Powell’s decision last year to deliver an emergency-sized rate cut, describing the move as “blatant election interference.” Antoni explained that the data Powell referenced then was “much less supportive of a rate cut than today.”
Additionally, Antoni told FOX Business that the Fed will most likely point to a strong labor market as an excuse to not cut rates.
“Similarly, any temporary increase in inflation expectations would likely serve as another excuse to hold rates firm,” he added.
Adding to the contentious relationship, Trump has slammed Powell for renovation project cost overruns at the central bank’s headquarters.
Trump told reporters over the weekend that the renovation of the Federal Reserve’s two main office buildings will cost approximately $2.5 billion. The Fed, not taxpayers, funds the renovation.
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