White House Criticizes Fed for Holding Rates Amid 0.2% Inflation

Tensions between the White House and the Federal Reserve have escalated as Vice President JD Vance publicly criticized Fed Chair Jerome Powell for refusing to lower interest rates despite easing inflation. Vance highlighted the timing of previous rate cuts, suggesting potential political inconsistencies.

In a recent tweet, Vance questioned why Powell had reduced rates by 50 basis points ahead of the 2024 election but is now reluctant to act with inflation lower. Vance's criticism follows a government report indicating that inflation rose by only 0.2% in May, lower than many experts anticipated. Despite this, Powell and the Fed have maintained steady rates.

Vance argues that high interest rates increase borrowing costs for essentials like housing, cars, and business startups. He believes that cutting rates now would benefit families and businesses by reducing their financial burdens.

Meanwhile, Donald Trump has been even more vocal in his criticism of Powell. Despite appointing Powell as Fed Chair, Trump has repeatedly criticized him for not lowering rates quickly enough. Over the past year, Trump has labeled Powell as "hardheaded" and "a major loser," even suggesting his removal from the position.

Powell, however, defended the Fed's cautious approach during a congressional testimony on June 24. He stated that the central bank is awaiting more data, particularly on the impact of President Trump’s new tariffs on the economy, before deciding on rate cuts. Powell acknowledged that while inflation has cooled, there remains significant uncertainty that warrants a measured response.

While the Fed kept rates steady last week at 4.25%–4.5%, analysts predict a potential rate cut as early as September. According to prediction platform Polymarket, there is a 51% chance of a 25 basis point cut in September, with only a 5% chance of a larger cut. Conversely, there is a 47% chance that no rate cut will occur.

Regardless of the timing of rate cuts, the tension between political pressures and economic policy decisions is intensifying. The debate underscores the delicate balance the Fed must maintain between addressing economic concerns and navigating political scrutiny.