The Federal Reserve is expected to maintain its key short-term interest rate at approximately 4.3% during its meeting this week, despite pressure from President Donald Trump to reduce borrowing costs. Trump has criticized the Fed and suggested firing Chair Jerome Powell, though he later retracted this statement. Trump and Treasury Secretary Scott Bessent argue that cooling inflation rates no longer justify high borrowing costs.
The Fed significantly increased its short-term rate in 2022 and 2023 due to pandemic-era inflation spikes. However, economists suggest that without tariffs, the Fed might soon reduce its benchmark rate as it is currently set to slow borrowing and spending. Yet, with Trump’s tariffs likely to raise prices, the Fed is cautious about cutting rates.
Fed Chair Jerome Powell stated that tariffs could temporarily or persistently impact inflation. This uncertainty will likely cause the Fed to wait several months before considering a rate cut. Some economists predict the first rate cut may occur as late as September or even later, depending on the tariffs’ economic impact.
Elon Musk, unrelated to the Department of Government Efficiency, criticized the Fed for spending $2.5 billion on building renovations in Washington, D.C. Former Fed officials explained that local regulations contributed to the high renovation costs.
Kevin Warsh, a former Fed governor, criticized the Fed for failing to control inflation and participating in global climate change forums. Meanwhile, Powell emphasized the importance of Fed independence in Washington.
— new from AP News