Tensions are rising between the White House and the Federal Reserve. Vice President JD Vance has publicly criticized Fed Chair Jerome Powell for refusing to lower interest rates, even though inflation has started to ease. Vance pointed out the timing of previous rate cuts, suggesting there may be political inconsistency at play.
So, is the Fed playing it safe or playing politics?
In a recent tweet post, Vice President JD Vance questioned why Jerome Powell had slashed rates ahead of the 2024 election, but now, with inflation clearly lower, is unwilling to act.
“I’d love to hear an argument for why Powell cut rates 50 points right before an election but can’t do it now with inflation lower.”
Vance’s criticism comes after the latest government report showed inflation rose just 0.2% in May, a number lower than what many experts expected. Despite this, Powell and the Fed have kept rates steady.
Vance thinks this is unfair. He says that when interest rates are high, it costs more for people to borrow money for things like houses, cars, and starting businesses. Vance believes that cutting rates now would help families and businesses save money.
Donald Trump has been even more outspoken. Despite appointing Powell as Fed Chair, Trump has repeatedly criticized him for not lowering rates fast enough.
Over the past year, Trump has called Powell everything from “hardheaded” to “a major loser,” and at one point even suggested firing him.
Jerome Powell, meanwhile, defended the Fed’s cautious approach during a testimony before Congress on June 24. According to Powell, the central bank is waiting for more data, especially on how President Trump’s new tariffs are impacting the economy, before deciding to cut rates.
He explained that although inflation has cooled, there’s still too much uncertainty to act quickly.
While the Fed held rates steady last week at 4.25%–4.5%, analysts believe a cut could happen as early as September. According to prediction platform Polymarket, there’s a 51% chance the Fed will cut rates by 25 basis points in September, and only a 5% chance of a bigger cut.
On the other hand, there’s a 47% chance that no rate cut will happen at all.
Whether rate cuts come soon or not, one thing is clear: the tension between politics and policy is heating up.
Jerome Powell defends the Fed’s cautious approach, stating they are waiting for more data, especially on how President Trump’s new tariffs are impacting the economy. He emphasizes that despite cooling inflation, there’s too much uncertainty to act quickly.
Donald Trump has repeatedly criticized Jerome Powell for not lowering rates fast enough, calling him “hardheaded” and “a major loser.” He even suggested firing Powell, asserting that high rates impede economic growth.
Jerome Powell has indicated that new tariffs from President Trump could boost inflation, making the Fed cautious about cutting rates. The central bank needs to assess the extent and persistence of tariff-induced price increases before adjusting policy.
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