By Todd Lassa
After he announced interest rates would remain unchanged at 4.25% to 4.5% Federal Reserve Chairman Jerome Powell in the traditional post-meeting press conference called the policy “moderately restrictive.” The Fed will be surveying the effects of President Trump’s tariffs on inflation and unemployment closely for the next two months on the way to the Federal Open Market Committee’s next review of interest rates in September.
“We’re seeing now substantial amounts of tariff revenue” coming into the federal government, of $30 billion per month, Powell said. While that would mitigate a small amount of the deficit hike from the One Big Beautiful tax and spending bill for the coming fiscal year, consumers and business are paying for it.
Powell offered the Trump administration no appeasement here. Pushed by reporters whether the FOMC was planning, expecting the cut in rates that the president has been demanding pretty much since his first administration, the Fed chair replied that the committee does not make decisions in advance.
After all, Powell, whom Trump calls “Too Late,” the president’s kindest epithet for the Fed chair, leads a committee of 12 who set rates. This dozen determined to keep inflation low and employment high consists of seven governors on the central bank’s board and five of 12 regional bank presidents who vote on a rotating business.
On Wednesday, 10 committee members voted to keep interest rates unchanged while two on the board of governors voted for a quarter-point reduction (to 4%-4.5%). This was the first time since 1993 that two members of the board of governors dissented. They are Christopher Waller and Michelle Bowman, The Wall Street Journal reports, both appointed by Trump 45 and both now the lead candidates to replace Powell when his term ends next May.
Waller has been open publicly about his desire to become Trump’s choice for the next Fed chair, NPR’s Morning Edition reports.
Powell told the press conference economic fundamentals look good, with moderate growth, low unemployment but with wage growth moderation, and eased inflation. But there has been a slowdown in consumer spending, the housing market remains weak and that inflation rate remains “somewhat elevated.”
The Fed had been raising interest rates through much of the Biden administration to bring down inflation elevated from the COVID pandemic. The Fed had managed a “soft landing” by reducing inflation while maintaining good hiring levels.
Now it’s Trump’s economy again and he wants to credibly claim the best in the nation’s history.
But the inflation rate had remained stubbornly above the Fed’s 2% target by about 0.4 points before ticking up to 2.7% last month, largely attributable to the tariffs. Real Gross Domestic Product rose 3% year-over-year in the second quarter after an 0.5% drop in the first quarter, but that was largely because of a shift from a trade deficit to a trade surplus.
If President Trump wants the Fed to consider a rate cut when the FOMC meets again in September, he may want to settle final tariff rates for all the trade partners. We are still far from knowing where the tariffs will settle down, Powell said, with “many uncertainties left to resolve.”
NOTE on this debate: We have but three columns. Pundit-at-Large Stephen Macaulay writes most often from a conservative perspective for the right column. This time, his column is on the left, in response to contributing pundit Rich Corbett’s column in support for President Trump’s economy.