Fed Chair Powell Defies Trump Pressure, Holds Steady on Rates

Federal Reserve Chair Jerome Powell testified before the Senate Banking Committee on Tuesday, reiterating the Fed's stance on maintaining steady interest rates despite mounting pressure from various quarters. Powell highlighted the potential inflationary impact of the Trump administration's tariff policies, stating that "most forecasters expect a fairly substantial wave of price increases to come through to the consumer." This perspective was in contrast to the views of some Republican senators who urged Powell to act swiftly to cut rates.

Powell emphasized the importance of caution, stating, "If we make a mistake here, people will pay the cost for a long time." The Federal Open Market Committee had unanimously voted to keep interest rates unchanged during its previous meeting, marking the fourth consecutive meeting with no changes. Powell acknowledged that while the majority of the committee expects rate cuts before the year-end, the decision must be approached carefully.

There is a notable divide among Fed officials regarding the appropriate course of action. Vice Chair Michelle Bowman and Christopher Waller, both appointed by Trump, advocated for quicker rate cuts to support the labor market. They viewed the inflation from tariffs as a "one-off" event. Conversely, Chicago Fed President Austan Goolsbee suggested that borrowing costs could be lowered again if tariffs do not drive up inflation. Powell, however, argued that tariff-driven price hikes could begin as early as this summer, and rushing to cut rates could reignite inflation.

Meanwhile, President Donald Trump, speaking from the NATO summit in the Netherlands, continued his public criticism of Powell, describing him as "a very stupid person" and "an average mentally person." Trump, who originally appointed Powell to lead the Fed in 2017, now blames him for keeping interest rates too high, claiming this refusal to slash rates is costing the federal government hundreds of billions of dollars in unnecessary interest payments. Trump confirmed he is actively reviewing candidates to replace Powell, whose term runs until May 2026.

Trump allies, including Commerce Secretary Howard Lutnick and Senator Bernie Moreno, have ramped up their attacks on Powell. Lutnick urged Powell to cut interest rates, while Moreno accused Powell of trying to sabotage Trump's trade agenda. Republicans in Congress are pushing for the Fed to act as a partner in dealing with the national debt, which currently stands at $36 trillion, by slashing interest rates and reducing borrowing costs. The US Treasury is running out of room to avoid a default unless Congress agrees to raise the debt ceiling again.

Despite legal restrictions preventing Trump from firing Powell outright, the president has threatened to do so several times. Analysts believe Trump will wait out Powell's remaining term and appoint a new chair once it expires. Trump has mentioned potential replacements, including Treasury Secretary Scott Bessent, Fed Governor Christopher Waller, and former Fed Governor Kevin Warsh. However, Powell has maintained a dignified silence, choosing not to engage in public discussions about the president or other public figures.