TLDR
- President Trump suggests the Fed should cut interest rates as tariffs begin affecting the economy
- Fed holds rates steady but forecasts two potential cuts in 2025 despite inflation concerns
- Fed Chair Powell acknowledged tariffs will likely increase prices but effects could be “transitory”
- Economic projections were revised to show lower growth (1.7%) and higher inflation (2.7%) for 2025
- Uncertainty about tariff impacts has increased, with Powell using “uncertainty” 18 times in his briefing
President Donald Trump called on the Federal Reserve to lower interest rates as his administration prepares to implement new tariffs. The remarks followed the Fed’s decision to hold rates steady at its March meeting.
“The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition (ease!) their way into the economy,” Trump posted on Truth Social.
His comments referenced planned “reciprocal” tariffs set to take effect April 2, which he calls “liberation day.”
The Federal Reserve kept its target range for the federal-funds rate at 4.25% to 4.5%. This marks the second consecutive meeting with no rate changes.
Fed officials revised their economic outlook, projecting lower growth and higher inflation for 2025. They now expect real GDP growth of 1.7%, down from the 2.1% projected in December.
Fed Chair Jerome Powell addressed the impact of Trump’s tariffs during his press conference. He stated that the president’s trade agenda would likely drive up prices, though there is uncertainty about how much.
Inflation projections were revised upward. The Fed now expects the Personal Consumption Expenditures price index to end the year at 2.7%, up from the previous forecast of 2.5%.
Powell uncertain…
Powell emphasized the uncertainty surrounding current economic forecasts. He used some form of the word “uncertainty” 18 separate times during his 60-minute press briefing.
The Fed chair suggested that tariff-driven inflation might be “transitory,” similar to language used during the price increases of 2021. Treasury Secretary Scott Bessent has echoed this view, describing tariffs as “a one-time price adjustment.”
Powell reassured the public that the Fed remains well-positioned to respond to changes in the economy. He noted that “hard data” indicators like employment and consumer spending remain positive.
Some analysts question whether the Fed’s projection of two rate cuts this year remains realistic given the revised economic outlook. The combination of lower growth projections and higher inflation expectations complicates the Fed’s decision-making.
Powell acknowledged that creating forecasts for the March meeting was “an admittedly challenging exercise” given the current uncertainty. He emphasized that the projections represent individual expectations rather than a committee plan.
Trump’s administration recently issued an executive order giving his appointees more power over independent agencies. While the order preserves the Fed’s control over monetary policy, it creates a closer connection between the White House and Fed oversight of banks.
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