Jerome Powell Should Not Bend To Trump's Pressure

2025-05-07 07:30:00 ET

Summary

• The FOMC is meeting to set interest rates at a time when Fed Chair Powell is under intense pressure from president Trump to cut interest rates to support an economy that is showing every sign of slowing.
• The key interest rate that matters to the economy is not the Fed’s short-term interest rate, but rather the 10-year US Treasury bond yield.
• Another reason that Powell should exercise considerable caution before resuming the Fed’s interest rate cutting cycle is that there is an unusually high degree of uncertainty as to how import tariff policy might affect inflation.
• Also, foreign investors appear to be losing confidence in the US dollar and the US Treasury bond market.

Originally published on May 5, 2025

This week, the Federal Reserve Open Market Committee (FOMC) meets to set interest rates. It does so at a time when Fed Chair Jerome Powell is under intense pressure from president Trump to cut interest rates to support an economy that is showing every sign of slowing. The FOMC meeting also takes place at a time when inflation expectations are rising, when there is an unusually high degree of economic policy uncertainty, and when foreign investors appear to be losing confidence in the US dollar and the US Treasury bond market. In those circumstances, Powell would do us a great service by continuing to turn a deaf ear to Trump’s demands for an interest rate cut....

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