President Donald Trump escalated his fairly one-sided war of words this week with Federal Reserve Chairman Jerome Powell, whom he nominated for the position in 2017.
“‘Preemptive Cuts’ in Interest Rates are being called for by many,” Trump posted on Truth Social on Monday. “With Energy Costs way down, food prices (including Biden’s egg disaster!) substantially lower, and most other ‘things’ trending down, there is virtually No Inflation. With these costs trending so nicely downward, just what I predicted they would do, there can almost be no inflation, but there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.”
The stock market and U.S. dollar slid dramatically after Trump’s latest attack on the Fed chairman, and Powell is unlikely to give the president what he wants to begin with. Powell cannot be fired despite claims by Trump to the contrary, and after the inflationary fiasco of 2021-2022, it is likely that Powell and the Fed learned enough lessons not to give in blindly to the will of politicians.
You could accurately describe Powell as “Mr. Too Late,” but not for the same reasons Trump is using the term. Inflation began to take effect when the COVID-19 lockdowns ended and people were allowed to spend the money printed by the Trump and early Biden administrations. Instead of attempting to head the problem off at the pass when inflation spiked to 5% in May 2021, the Fed elected to wait until March 2022 to begin to raise rates and raised them more aggressively, including multiple three-quarters of a percentage point hikes, in late 2022 and early 2023.
“My hope is that we’ll get through this and get back to what we’re always going to be aiming for: maximum employment and price stability,” Powell said last week in response to the president’s repeated calls to lower rates.
What Powell, Wall Street, and everyone who isn’t drinking Trump adviser Peter Navarro’s protectionist Kool-Aid understand is that lowering the federal funds rate now, in the middle of a global trade war, could be catastrophic to the U.S. economy. Trade wars are not, in fact, “good and easy to win,” as the president likes to say, and the sweeping, new zero-tariff trade deals have, in large part, failed to materialize thus far. The only win the administration can point to is the framework for a new trade agreement between the United States and India that has reportedly been agreed upon by both delegations. To be sure, this is a positive development, but trade with India only amounts to roughly 2.5% of all U.S. trade.
THE MARKETS WON’T LET TRUMP FIRE JEROME POWELL
Trade deals with Japan and the European Union have yet to take shape, and all Trump has accomplished so far by nuking his own free trade agreement with Canada is to shoot holes in Conservative leader Pierre Poilievre’s electoral chances. With a 145% tariff on China and the country implementing a 125% tariff on American goods, it is unlikely that the Asian front of Trump’s trade war will end anytime soon. However, Treasury Secretary Scott Bessent said Tuesday that the trade war with China is “not sustainable” and that he expects a “de-escalation.” Perhaps the wiser, more sober counterpart to Navarro is beginning to gain influence at 1600 Pennsylvania Ave.
American consumers will soon feel the impact of Trump’s tariffs, particularly the astronomically high tariffs placed on China, and that comes in the midst of a historically bad run for the stock market. Powell is correct that now would be a wildly irresponsible time to cut rates, and Bessent or someone else in the president’s inner circle must explain to him that if the Fed granted his wish, it could very well destroy his presidency.
Brady Leonard (@bradyleonard) is a musician, political strategist, and host of The No Gimmicks Podcast.