The United States Federal Reserve (Fed) has taken a firm stance against President Donald Trump by choosing to keep interest rates steady within the current range of 4.25% to 4.5%. Alongside this decision, the Fed issued a strong warning concerning the detrimental effects the new tariff policy could have on the nation's economy.
Amid escalating trade tensions, Fed Chairman Jerome Powell highlighted that maintaining tariffs will "likely" lead to a dangerous combination: a surge in inflation, a slowdown in economic growth, and a rise in unemployment, according to a report by EFE news agency. Although Powell refrained from directly naming Trump, his remarks clearly outlined the impact of the recent protectionist measures on the U.S. economy.
This cautionary note follows the release of data indicating a 0.3% contraction in GDP during the first quarter of the year, marking the first decline since 2022, alongside an increase in the trade deficit which reached $140.5 billion in March. Despite political pressure from Trump to lower interest rates—where he maintains “there is no inflation” and criticizes Powell via his Truth Social platform—the Fed Chairman has remained steadfast. Powell emphasized that economic stability is his top priority and he will not yield to political pressures.
“We will use our tools to promote maximum employment and price stability. Our decisions will be based solely on economic data, not political discourse,” Powell stated during a press conference.
As tensions escalate, Trump has not only publicly challenged Powell's decisions but has also hinted at the possibility of removing him before his term ends in 2026. Recently, Trump praised tariffs as a "source of wealth for America" while accusing the Fed of hindering economic progress.
Analysts and investors are watching with concern over potential executive interference in the Fed's independence. "If the central bank's autonomy is undermined, markets could respond very negatively," warns Krishna Guha of Evercore ISI.
The U.S. economy stands at a crossroads. While the White House supports tariffs as a strategy to bolster domestic industry, economic data points to slowing growth and a rising trade deficit. Powell has made it clear that the Fed is ready to act, but will not make hasty decisions.
This confrontation signifies a pivotal moment in the interplay between the nation's monetary policy and trade policy, with consequences that may extend far beyond U.S. borders.
Understanding the Fed's Position on Tariffs
Why did the Federal Reserve decide to keep interest rates unchanged?
The Federal Reserve chose to keep interest rates steady to avoid exacerbating economic instability, given concerns about inflation, economic slowdown, and rising unemployment linked to current tariff policies.
How have tariffs affected the U.S. economy so far?
Tariffs have contributed to a 0.3% contraction in GDP in the first quarter and an increase in the trade deficit, reflecting potential adverse effects on economic growth and stability.
What are the implications of Trump's criticism of the Federal Reserve?
Trump's criticism highlights a potential clash between the executive branch and the Federal Reserve, raising concerns about the central bank's independence and its role in managing the economy.
What measures might the Fed take in response to current economic challenges?
The Fed is prepared to use its tools to support employment and price stability, making decisions based on economic data rather than political pressure, and will act cautiously to maintain economic stability.