Why Tariffs Stopped the Fed from Cutting Rates in 2023: Insights from Powell | CNN Business

The Federal Reserve has chosen not to lower interest rates this year, a decision influenced heavily by former President Donald Trump’s policies. Jerome Powell, the Fed Chair, acknowledged this at a recent banking forum in Sintra, Portugal. He suggested that if it weren’t for Trump’s significant changes, the Fed might have cut rates already.

Despite calls from Trump for lower rates, the Fed’s officials are taking a cautious stance. They want to see how Trump’s tariffs impact the U.S. economy before making any moves. Recent data shows that the Fed has held steady on interest rates, reflecting a cautious approach to unpredictable economic pressures.

Trump has not held back in his criticism of Powell. He has referred to him in unflattering terms and posted publicly about how higher interest rates could cost the U.S. significantly. In a handwritten note shared on social media, Trump slammed Powell for keeping rates higher than many countries, suggesting it harms the economy.

Interestingly, Powell is not alone in this decision-making. Some Fed officials, like Vice Chair Michelle Bowman and Governor Christopher Waller, have indicated they might support a rate cut in the future, contingent on how inflation and economic stability develop. However, none have backed the drastic cuts Trump has urged. Current market estimates suggest an 81% likelihood that the Fed will maintain rates during its upcoming meeting, making a cut seem uncertain.

Historically, monetary policy has frequently wavered with the political climate. For example, in the late 1970s, Fed Chair Arthur Burns faced similar pressures, leading to rising inflation and economic turbulence. Experts warn that political interference can create long-term risks for the economy, highlighting the importance of an independent central bank.

At the same panel discussion, Christine Lagarde, President of the European Central Bank, commended Powell for his impartiality, calling him a "courageous central banker." This sentiment underscores the global expectation for central banks to remain above the political fray.

During his comments, Powell was asked about the challenges of navigating Trump’s public criticism. He reaffirmed his focus on fulfilling his role, emphasizing the need for the Fed to operate without political influence. He explained, "We’re trying to deliver macro stability, financial stability, economic stability for the benefit of all the people."

This focus on stability rather than political pressures is crucial, especially as the economy faces complex and evolving challenges. As we look ahead, the Fed’s decisions will play a vital role in shaping not only the U.S. economy but also the global economic landscape.

For more insights into the Federal Reserve’s role in the economy, check out the Federal Reserve’s official site.

Source link