Jerome Powell hasn’t offered Donald Trump any slack during his second term, but he’s certainly giving the president enough rope.
The Federal Reserve chair once again refused to lower key interest rates as economic uncertainty around Trump’s tariff scheme has slowed the American economy. Powell cited that very same uncertainty as his reasoning for keeping rates consistent during a press conference on Wednesday.
The wide-ranging tariffs promised by President Trump could cause a nightmare scenario where prices rise and the economy stumbles, a process that was commonly called “stagflation” during the crises that roiled the global economy in the 1970s. The straightforward Fed logic of lowering borrowing costs when the economy is struggling and raising them to counter rapid inflation is put in a double bind by the hypothetical, and Powell admitted as much.
“It’s really not at all clear what it is we should do,” Powell said. “There’s so much uncertainty.”
Powell offered a bleak idea of the future under Trump’s tariffs as proposed, saying that the U.S. could see “a rise in inflation, a slowdown in economic growth, and an increase in unemployment.”
Powell added that inflationary effects of tariffs could be a one-time price spike in reaction to the new duties or a “persistent” problem.
“Avoiding that outcome will depend on the size of the tariff effects [and] on how long it takes for them to pass fully into prices,” Powell shared.
Powell’s doggedness around interest rates has made him an enemy in the Oval Office. The Fed is set up to be independent of the White House, and Powell does not serve at the pleasure of the president, but he’s still felt consistent pressure from Trump.
In April, the president said that the end of Powell’s term “cannot come fast enough” and seemed confident that he could get the chairman to vacate his post.
“He’ll leave. If I ask him to he’ll be out of there,” Trump told reporters. “I’m not happy with him. If I want him out, he’ll be out of there real fast. Believe me.”
