Trump summons Fed’s Powell and tells him he’s wrong with the fee.
US President Donald Trump called Federal Reserve Chairman Jerome Powell on May 29 for his first in-person meeting since taking office in January, telling the central bank chief that he was “mistakes” by not lowering interest rates.
The Federal Reserve issued a new economic forecast on June 18, predicting higher inflation and slower economic growth than previously expected amid changes in trade, immigration, fiscal and regulatory policies.
And Fed Chairman Jerome Powell warned that rising prices could reduce the summer for Americans across the country.
The annual consumer price rise is expected to reach 3% this year, up from its 2.7% forecast in March. Expectations for GDP growth fell to 1.4% from 1.7% in March. The Fed also expects unemployment to reach 4.5% at the end of the year, starting from its 4.4% forecast in March and the current 4.2% rate.
Still, the Fed did not rush to cut rates among other signs of positive economic data. Economists are also mixed up when they think that central banks will cut the next rate. Powell highlighted the “pretty good” labor market at a press conference following the Federal Reserve’s June 18 meeting.
The Fed has stabilized the benchmark short-term rates in the 4.25% to 4.5% range as inflation remains rising compared to its 2% target. The forecast for two cuts this year remains the same, but authorities predict that only one rate cut has been reduced in 2026 from two to one rate cut.
The Fed sends sticks to the waiting approach
Opinions differ on when the Fed will be cut.
According to a memo on June 18th, Troy Ludtka, a senior US economist with SMBC Nikko Securities Americas, expects the Fed to cut fees “faster than expected” “now” and “more than expected” at this rate.
Michael Feroli of JPMorgan Chase is only looking forward to a fee cut this year after the Federal Reserve meeting in December. Ryan Sweet, chief US economist at Oxford Economics, expects the next rate cut to take place in December, but believes the risk is shifting to “larger, faster.”
“From a Fed perspective, layoffs are important and as long as they remain low, the pressure to cut interest rates will not be strengthened,” Sweet said in a June 18 memo.
Paul Ashworth, North American economic head of research firm Capital Economics, hopes the Fed will remain on the sidelines “for a while” and refrain from cutting interest rates until the first half of next year.
President Donald Trump’s tariffs are expected to blow out inflation and stifle economic growth, but they are tasked with pose a unique challenge for central banks, keeping inflation low and employment rates high.
So far, banks have adopted a waiting approach to cut back, seeing how new trade policies will shake up. June was the Fed’s fourth meeting without interest rate cuts after a series of cuts at the end of 2024.
There has been political pressure from Trump to cuts, which cast more shaming for Powell, but Powell said the Fed’s monetary policy stance is “well positioned to respond in a timely manner to potential economic development.”
A reduction rate too early can surprise inflation. Inflation has already surpassed the Fed’s 2% target. However, there is also the risk of waiting too long, which can damage the labor market and slow economic growth.
“We will continue to determine the appropriate stance of our surveillance policy based on incoming data, evolving outlook and risk balance,” Powell said.
When will higher prices hit?
Tariffs were a major topic after the meeting, and Powell warned that consumer prices would soon increase and that they might consider economic activity.
In particular, Powell warned of a number of summer months of increase.
“The tariffs will have to be paid, and some of them will fall to the end consumer,” he said. “That’s what business says… so we know it’s coming.”
While Trump’s tariffs have been more restrained than expected, Powell warned that price increases could take longer to adopt consumers, as some retailers’ products are being effective months before the new tariff charges were effective.
“It takes time for tariffs to move their path through the chain of distribution to the end consumer,” Powell said. “So we’re beginning to see some effects. We’re hoping to see more.”
Powell said uncertainty around the tariffs was declining when Trump announced in April that he would wipe out the 10% tariffs. However, it is not yet clear whether the impact on inflation will be short-lived or more permanent.
“One of our jobs is to make sure that a one-time increase in inflation does not change to an inflation issue,” Powell said. “And it depends on the size of the effect, how long it will take them to get in, and ultimately fixing the expectations of inflation.”
