The Marriner Eccles Building, headquarters of the Federal Reserve Board, sits along Constitution Avenue in Washington, D.C., just a short walk from the West Wing of the White House. But for those working at the Fed and for a U.S. president, the distance feels infinite.
Presidents want low interest rates. The Federal Reserve Board is charged with promoting full employment and low inflation. “The ideas sound sort of similar. But often they aren’t. And when they butt into one another, fireworks can erupt.”
That potential is on full display this week as the Federal Open Market Committee (FOMC), the Fed’s rate-making body, meets to discuss the economy and the future of interest rates. The meeting, which begins Tuesday, will culminate in a decision announcement at 2 p.m. Wednesday, followed by a press conference with Fed Chairman Jerome Powell at 2:30 p.m.
Will the Fed Cut Rates?
President Trump made his stance clear on Friday, saying he believes “rates are too high” and that he knows more about interest rates than the Federal Reserve. A rate cut would also be welcomed by industries reliant on affordable financing, including homebuilders, real estate developers, and companies like Boeing. But the president should not hold his breath.
According to the CME Group’s FedWatch Tool, “there is almost no chance of a rate cut” this week. The Fed is expected to hold its key federal funds rate at 4.25% to 4.5%, a level set in December. The next potential rate cut may not come until June.
Fed Chairman Jerome Powell will likely face questions during his press conference about the Fed’s decision, its timeline for rate cuts, and the reaction he expects from the Trump administration. And if the Fed follows expectations and holds rates steady, “President Trump will weigh in later — loudly.”
Trump vs. Powell: A History of Tension
This week’s debate is the latest chapter in an ongoing battle between President Trump and Jerome Powell. In 2018, Trump appointed Powell as Fed chairman, but by 2019, their relationship had soured. At the time, Trump criticized the Fed’s decision to raise rates to 2.25%, questioning whether Powell was a bigger enemy than China’s President Xi Jinping.
Trump’s frustrations have continued, but Powell has shown no intention of stepping down. Asked before the 2024 election if he would resign if Trump won, Powell responded, “No.”
Why the Fed Raised Rates
The Fed’s decision to raise rates from early 2022 to mid-2023 was driven by a sharp inflation surge following the COVID-19 pandemic. “Everyone can remember when gasoline prices topped $5 a gallon during the summer of 2022. Everyone remembers sudden food-price inflation that has eased, though prices haven’t fallen.”
To curb inflation, the Fed pushed rates higher, which led to significant economic ripple effects. “The Fed’s moves pushed interest rates higher and sparked an ugly stock-market selloff.” Home sales plummeted to their lowest annual rate since 1995, and businesses relying on bank financing faced mounting challenges.
Despite some progress, inflation remains above the Fed’s 2% target. The Personal Consumption Expenditures Price Index report, set for release Friday, is expected to show an overall inflation rate of 2.6% year-over-year, with core inflation at 2.8%. Until the Fed sees sustained progress toward its inflation goal, it’s unlikely to ease rates.
What’s Ahead?
This week’s Fed decision is just one part of a busy economic calendar, which includes:
- Monday: New-home sales report.
- Thursday: GDP growth report.
- Friday: Personal Consumption Expenditures Price Index release.
As the week unfolds, all eyes will be on Jerome Powell and his remarks following the FOMC meeting. The Federal Reserve’s decisions will continue to shape the economic landscape, while tensions between the White House and the Fed remain firmly in place.
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