Fed's Powell faces Congress as Trump rate pressure intensifies
Federal Reserve Chair Jerome Powell faces intensifying pressure for rate cuts from the White House and even some of his fellow central bank policymakers as heads to Capitol Hill Tuesday for his semiannual testimony to Congress.
He is likely to tell House lawmakers today that the Fed can afford to hold rates steady as officials evaluate the unknown effect of President Trump's trade policies on inflation — a stance he emphasized last week after the central bank kept monetary policy unchanged for the fourth consecutive meeting.
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
Powell's wait-and-see approach is inflaming tensions with Trump, who continues to hammer Powell and the central bank to cut rates.
The president's attacks intensified at the end of last week as Trump called for rates to drop from 4.25%-4.5% to between 1% and 2% and said of Powell and the Fed's Board of governors: "I don't know why the Board doesn't override this Total and Complete Moron!"
He also mused once more about removing Powell before his term as chair ends next May, an option he previously said he had rejected.
"Maybe, just maybe, I'll have to change my mind about firing him?" Trump posted. "But regardless, his Term ends shortly!"
Trump is not the only one calling for lower rates. Even some of Powell's fellow policymakers — Fed governors Michelle Bowman and Chris Waller — have said in recent days that they now see cutting rates as soon as the Fed's next policy meeting in July due to mild inflation readings of late.
Bowman made the argument for such a move in a speech Monday, saying that inflation has declined or come in below expectations over the past several months and asserting that trade policy will only amount to "minimal impacts" on the Fed's preferred inflation measure.
She also cited concerns that downside risks to employment could "soon become more salient, given recent softness in spending and signs of fragility in the labor market."
The comments from Bowman and Waller are not the only sign of an increasing divide within the Fed.
There was also a difference of opinion evident last week in the Fed's latest "dot plot" outlining future interest rate moves. While eight officials saw two cuts still happening in 2025, seven officials predicted no cuts at all — up from the four officials who made that call previously.
Powell noted last week that recent inflation reports have been favorable, but that goods prices have been moving up following the introduction of new tariffs and there could be more of that this summer.
"We're beginning to see some effects, and we do expect to see more of them over the coming months," he told reporters last Wednesday.
Thus, the right thing to do for now, he added, is 'hold where we are' on rates.
If asked about Trump's pressure Tuesday, Powell is likely to brush off any criticism from the president, saying that it doesn't interfere with his job and that he plans to serve out his full term, slated to end in May 2026.
He will also likely be asked how Trump's strikes on three Iranian nuclear sites affect the path forward as central bank officials gauge the full impact of the president's trade, tax, and immigration policies on the path of inflation and economic growth.
On Monday evening Trump said Israel and Iran had agreed to a cease-fire that he said could lead to the end of the war between the countries.
Some Fed watchers worry that any sustained increase in oil prices would add to the inflationary impulse already present in the US from Trump's tariffs.
Wall Street analysts at JPMorgan Chase (JPM) have warned that a prolonged conflict and the potential closure of the critical Strait of Hormuz could drive oil prices as high as $120 a barrel, pushing US inflation back toward 5%.
That could bolster the argument of some hawks at the Fed that rates need to stay where they are for longer to protect against another inflation surge.
On the other hand, there is also an argument circulating on Wall Street that any new conflict in the Middle East could push the Federal Reserve to cut interest rates sooner than expected.
Trump said Friday that if Powell is concerned about inflation or anything else, then 'all he has to do is bring the rate down, so we can benefit on interest costs, and raise it in the future when and if these 'other elements' happen.'
Click here for in-depth analysis of the latest stock market news and events moving stock prices
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
San Francisco Chronicle
8 minutes ago
- San Francisco Chronicle
Trump again questions NATO's collective defense guarantee ahead of summit
THE HAGUE, Netherlands (AP) — President Donald Trump on Wednesday once again raised questions about America's commitment to defend its allies should they come under attack as he prepared to join a NATO summit in the Netherlands. Just as he did during his first term in office, Trump suggested that his backing would depend on whether U.S. allies are spending enough on defense. He's demanded that European allies and Canada dedicate 5% of GDP to their security. On the eve of the meeting in The Hague, Trump told reporters aboard Air Force One that his commitment to Article 5 of NATO's founding treaty – the organization's collective security guarantee – 'depends on your definition.' 'There's numerous definitions of Article 5. You know that, right?' Trump said. 'But I'm committed to being their friends.' He signaled that he would give a more precise definition of what Article 5 means to him once he is at the summit. As a candidate in 2016, Trump suggested that he as president would not necessarily heed the alliance's mutual defense guarantee. In March this year, he expressed uncertainty that NATO would come to the United States' defense if needed. What Article 5 says Article 5 is the foundation stone on which the 32-member North Atlantic Treaty Organization is built. It states that an armed attack against one or more of the members shall be considered an attack against all members. It also states that if such an armed attack occurs, each member would take, individually and in concert with others, 'such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.'' That security guarantee is the reason previously neutral Finland and Sweden sought to join NATO after Russia launched its full-scale invasion of Ukraine in 2022 and why Ukraine itself and other countries in Europe also want in. When it has been invoked Article 5 was only invoked once, in the wake of the September 11, 2001, terror attacks on the United States, paving the way for NATO's biggest ever operation in Afghanistan. But NATO allies have also taken collective defense measures, including joining the U.S. to fight the Islamic State group in Syria, Iraq and Afghanistan, as well as help keep the peace in the Balkans. The Three Musketeers-like pledge of all for one, one for all, is at the heart of NATO's deterrent effect. To question it too loudly might invite an adversary to test it. European officials have said that Russia is planning to do just that. The impact of Article 5 on Ukraine NATO's credibility hinges on Article 5 and its commitment to offer membership to any European country that can contribute to security in Europe and North America. But Ukraine, currently in the middle of war with Russia, might oblige all 32 member countries to spring to its defense militarily, potentially igniting a wider war with a nuclear-armed country. Trump is vetoing its membership for the foreseeable future. Article 5 becomes problematic when the territory of a member is unclear. For instance, Russian forces entered Georgia in August 2008, a few months after NATO leaders first promised the country it would join, along with Ukraine.
Associated Press
8 minutes ago
- Associated Press
Trump again questions NATO's collective defense guarantee ahead of summit
THE HAGUE, Netherlands (AP) — President Donald Trump on Wednesday once again raised questions about America's commitment to defend its allies should they come under attack as he prepared to join a NATO summit in the Netherlands. Just as he did during his first term in office, Trump suggested that his backing would depend on whether U.S. allies are spending enough on defense. He's demanded that European allies and Canada dedicate 5% of GDP to their security. On the eve of the meeting in The Hague, Trump told reporters aboard Air Force One that his commitment to Article 5 of NATO's founding treaty – the organization's collective security guarantee – 'depends on your definition.' 'There's numerous definitions of Article 5. You know that, right?' Trump said. 'But I'm committed to being their friends.' He signaled that he would give a more precise definition of what Article 5 means to him once he is at the summit. As a candidate in 2016, Trump suggested that he as president would not necessarily heed the alliance's mutual defense guarantee. In March this year, he expressed uncertainty that NATO would come to the United States' defense if needed. What Article 5 says Article 5 is the foundation stone on which the 32-member North Atlantic Treaty Organization is built. It states that an armed attack against one or more of the members shall be considered an attack against all members. It also states that if such an armed attack occurs, each member would take, individually and in concert with others, 'such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.'' That security guarantee is the reason previously neutral Finland and Sweden sought to join NATO after Russia launched its full-scale invasion of Ukraine in 2022 and why Ukraine itself and other countries in Europe also want in. When it has been invoked Article 5 was only invoked once, in the wake of the September 11, 2001, terror attacks on the United States, paving the way for NATO's biggest ever operation in Afghanistan. But NATO allies have also taken collective defense measures, including joining the U.S. to fight the Islamic State group in Syria, Iraq and Afghanistan, as well as help keep the peace in the Balkans. The Three Musketeers-like pledge of all for one, one for all, is at the heart of NATO's deterrent effect. To question it too loudly might invite an adversary to test it. European officials have said that Russia is planning to do just that. The impact of Article 5 on Ukraine NATO's credibility hinges on Article 5 and its commitment to offer membership to any European country that can contribute to security in Europe and North America. But Ukraine, currently in the middle of war with Russia, might oblige all 32 member countries to spring to its defense militarily, potentially igniting a wider war with a nuclear-armed country. Trump is vetoing its membership for the foreseeable future. Article 5 becomes problematic when the territory of a member is unclear. For instance, Russian forces entered Georgia in August 2008, a few months after NATO leaders first promised the country it would join, along with Ukraine. Georgia's NATO application is still pending but seems unlikely for many years. Russia continues to occupy large swaths of Ukraine and other parts are contested, meaning that its borders cannot be easily defined.
Washington Post
8 minutes ago
- Washington Post
Trump again questions NATO's collective defense guarantee ahead of summit
THE HAGUE, Netherlands — President Donald Trump on Wednesday once again raised questions about America's commitment to defend its allies should they come under attack as he prepared to join a NATO summit in the Netherlands. Just as he did during his first term in office, Trump suggested that his backing would depend on whether U.S. allies are spending enough on defense. He's demanded that European allies and Canada dedicate 5% of GDP to their security. On the eve of the meeting in The Hague, Trump told reporters aboard Air Force One that his commitment to Article 5 of NATO's founding treaty – the organization's collective security guarantee – 'depends on your definition.' 'There's numerous definitions of Article 5. You know that, right?' Trump said. 'But I'm committed to being their friends.' He signaled that he would give a more precise definition of what Article 5 means to him once he is at the summit. As a candidate in 2016, Trump suggested that he as president would not necessarily heed the alliance's mutual defense guarantee. In March this year, he expressed uncertainty that NATO would come to the United States' defense if needed. Article 5 is the foundation stone on which the 32-member North Atlantic Treaty Organization is built. It states that an armed attack against one or more of the members shall be considered an attack against all members. It also states that if such an armed attack occurs, each member would take, individually and in concert with others, 'such action as it deems necessary, including the use of armed force, to restore and maintain the security of the North Atlantic area.'' That security guarantee is the reason previously neutral Finland and Sweden sought to join NATO after Russia launched its full-scale invasion of Ukraine in 2022 and why Ukraine itself and other countries in Europe also want in. Article 5 was only invoked once, in the wake of the September 11, 2001, terror attacks on the United States, paving the way for NATO's biggest ever operation in Afghanistan. But NATO allies have also taken collective defense measures, including joining the U.S. to fight the Islamic State group in Syria, Iraq and Afghanistan, as well as help keep the peace in the Balkans. The Three Musketeers-like pledge of all for one, one for all, is at the heart of NATO's deterrent effect. To question it too loudly might invite an adversary to test it. European officials have said that Russia is planning to do just that. NATO's credibility hinges on Article 5 and its commitment to offer membership to any European country that can contribute to security in Europe and North America. But Ukraine, currently in the middle of war with Russia , might oblige all 32 member countries to spring to its defense militarily, potentially igniting a wider war with a nuclear-armed country. Trump is vetoing its membership for the foreseeable future. Article 5 becomes problematic when the territory of a member is unclear. For instance, Russian forces entered Georgia in August 2008, a few months after NATO leaders first promised the country it would join, along with Ukraine. Georgia's NATO application is still pending but seems unlikely for many years. Russia continues to occupy large swaths of Ukraine and other parts are contested, meaning that its borders cannot be easily defined.
