U.S. Federal Reserve sets interest rates, contrary to Donald Trump's preferences
Revamped Recap:
Donald Trump's irk grew as the Federal Reserve (Fed) decided to keep interest rates stagnant on June 18, 20XX, marking the fourth consecutive time since Trump's re-entry into the White House. Criticizing the Fed's stance on low inflation and announcing his displeasure with the Fed's leader, Jerome Powell—whom he had previously appointed—Trump jokingly proposed becoming the Fed president himself.
Despite Trump's frustration, Jerome Powell remained adamant that the Fed would not rapidly alter its wait-and-see approach. Powell believes it's crucial to assess the true impact of tariffs on inflation before making any decisions. Most experts opine that since the slowing inflation (2.1% in April 20XX) may have allowed for a potential rate decrease in June, the expected negative effects of tariffs on prices were not taken into account.
However, the feared inflation impact of tariffs could lead the Fed to revise its monetary policy, potentially impacting their decisions on interest rates in 2025. Analysts believe the Federal Reserve is considering two rate cuts this year, though, Mr. Powell's recent remarks have led many to question this possibility.
Meanwhile, the Fed's officials have downgraded their forecasts for the United States' growth in 2025 and predict an acceleration in inflation to 3%. They also anticipate a moderate increase in the unemployment rate to 4.5%.
In light of the ongoing war between Iran and Israel, the Fed is vigilant about potential oil price fluctuations and their impact on inflation.
Tariff & Inflation Connection:
Tariffs imposed in 2025 are fueling an immediate cost increase for companies, leading to a subsequent rise in consumer prices. These tariffs can drive an overall inflation spike of approximately 1.4% in a short period, pushing core Consumer Price Index (CPI) inflation to about 4% year-over-year. Such inflationary pressure might reduce real disposable personal income and could potentially lead to a contraction in real consumer spending in Q2 and Q3 2025.
The inflation spike driven by these tariffs could prompt the Federal Reserve to maintain or raise interest rates to mitigate the inflationary effects and balance against growth headwinds.
[1] Yale Budget Lab. (n.d.). Fiscal & Monetary Policies in Response to Tariff Increases. https://yalebudgetlab.org/fiscal-monetary-response-tariffs[2] J.P. Morgan Research. (2025, April 15). Global Outlook Update: United States. https://www.jpmorganchase.com/research/public/globaloutlook/docs/US_Economics_2025Q2_US-Economic-Update.pdf
- The imposition of tariffs in 2025 is likely to intensify policy-and-legislation discussions within the finance sector, as the Federal Reserve considers the potential impact of inflation on their monetary policy and subsequent decisions on interest rates.
- The spike in inflation, caused by the tariffs, could inspire a shift in politics, as Donald Trump's frustration over the Fed's decisions on low inflation might be exacerbated, potentially leading to more general-news headlines about Trump's discontent with Fed policy.
