Jerome Powell's Resistance to Lowering Interest Rates: A Clash with President Trump
The ongoing tension between President Donald Trump and Federal Reserve Chair Jerome Powell has reached new heights, as Powell continues to resist calls to lower interest rates, a move Trump believes is critical to boosting the U.S. economy. This standoff has sparked significant debate, with Trump openly criticizing Powell, even nicknaming him "Too Late Powell" for his perceived delays in monetary policy adjustments. Adding fuel to the fire, the Federal Reserve's recent decision to keep interest rates steady at 4.25% to 4.5% was met with a historic double dissent from two board members, marking the first such occurrence in over three decades. This blog post explores the dynamics of this clash, the implications of the dissent, and why Powell's stance is seen as hindering Trump's economic agenda.
The Context: Trump's Push for Lower Interest Rates
President Trump has been vocal about his desire for lower interest rates, arguing they would stimulate economic growth, reduce borrowing costs for consumers and businesses, and ease the burden of government debt servicing. Lower rates could make mortgages, auto loans, and credit card debt more affordable, potentially spurring consumer spending and business investment. Trump's economic vision, which includes significant tariffs and tax cuts, relies on a robust economy to offset potential inflationary pressures. He has repeatedly claimed that the Federal Reserve, under Powell's leadership, is stifling growth by maintaining what he calls unnecessarily high rates, positioning the U.S. at a disadvantage compared to other countries with lower rates, like those in the European Union.
In a recent statement, Trump lashed out at Powell, saying, “We should be the lowest interest rate. And we're not. We're ... number 38 because of the Fed. It's all because of the Fed. He's done a bad job.” This sentiment reflects Trump's frustration with Powell's cautious approach, particularly as economic indicators show solid GDP growth (3% in Q2 2025) but a slowdown in consumer spending and job creation in certain sectors.
Powell’s Rationale: Inflation and Economic Stability
Jerome Powell, appointed by Trump in 2017 but reappointed by President Biden in 2021, has consistently defended the Federal Reserve's independence and its dual mandate to maintain low inflation and maximize employment. Powell argues that the current interest rate range of 4.25% to 4.5% is “modestly restrictive,” appropriate given that inflation is slightly above the Fed’s 2% target, at 2.7% in June 2025. He has pointed to Trump’s tariffs as a key factor driving up prices, noting, “We went on hold when we saw the size of the tariffs. Essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs.”
Powell’s cautious stance is rooted in the fear that premature rate cuts could exacerbate inflation, especially in an economy already grappling with tariff-induced price increases. He has emphasized that the Fed is waiting for greater clarity on how Trump’s policies, including a 10% tax on all imports and a 145% levy on Chinese imports, will impact inflation and growth. Moreover, Powell has highlighted the strength of the labor market, which is at a breakeven point, and the overall economy, which he describes as “solid,” suggesting that the current rates are not unduly hampering growth.
Historic Dissent: A Crack in the Fed’s Unity
For the first time since 1993, two members of the Federal Reserve Board of Governors—Christopher Waller and Michelle Bowman—dissented from the majority decision to hold rates steady at the July 2025 meeting. Both governors, seen as potential contenders to replace Powell when his term ends in May 2026, argued for a quarter-point rate cut, citing a cooling labor market and the belief that tariff-related inflation spikes may be temporary. Waller, in particular, emphasized the need for preemptive action to support employment, stating, “With underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate.”
This rare double dissent signals a shift in sentiment within the Fed, potentially aligning with Trump’s push for lower rates. Some analysts speculate that Waller and Bowman’s votes reflect strategic positioning for Trump’s favor, given his influence over the next Fed chair appointment. However, Powell downplayed the dissent, praising the clarity of their arguments and describing the meeting as productive. Critics, though, argue that the dissent undermines Powell’s authority and highlights internal divisions at a time when the Fed faces unprecedented political pressure.
Why Powell’s Stance is Seen as Hindering Trump
From Trump’s perspective, Powell’s refusal to lower rates is a direct obstacle to his economic goals. The president’s tariffs, while aimed at protecting American industries, have increased costs for goods and contributed to inflation, which Powell cites as a reason for maintaining higher rates. This creates a vicious cycle: Trump’s policies drive inflation, which Powell uses to justify keeping rates steady, frustrating Trump’s desire for cheaper borrowing to fuel growth. The administration has even explored unconventional tactics, such as scrutinizing the Fed’s $2.5 billion headquarters renovation as potential grounds for firing Powell, though legal experts doubt the validity of such a move.
Moreover, the dissent from Waller and Bowman amplifies Trump’s narrative that Powell is out of step with the economic needs of the country. The fact that two board members broke ranks suggests that Powell’s influence over the Federal Open Market Committee (FOMC) may be waning, especially as his term nears its end. Trump has capitalized on this, urging the Fed’s Board of Governors to “assume control” if Powell continues to resist rate cuts, calling him a “stubborn moron” on Truth Social.
The Risks of Undermining Fed Independence
Powell’s insistence on maintaining the Fed’s independence is not without merit. Economic research suggests that an independent central bank is better equipped to manage inflation by making unpopular decisions, such as keeping rates high to curb price increases. However, Trump’s aggressive public attacks and threats to fire Powell risk eroding this independence, potentially destabilizing financial markets. For instance, when Trump recently floated the idea of dismissing Powell, long-term inflation expectations spiked, and interest rates on government bonds rose, counterintuitively increasing borrowing costs—the opposite of Trump’s goal.
If Trump were to succeed in replacing Powell with a chair more amenable to his demands, the Fed could face significant dissent from other members, further weakening its credibility. As former Fed economist Joseph Gagnon noted, a chair perceived as beholden to the president could create uncertainty that harms the economy. Moreover, slashing rates to Trump’s desired 1% in the current environment could fuel inflation, erode investor confidence, and paradoxically raise real-world borrowing costs as lenders demand higher returns to offset inflation risks.
Looking Ahead: A September Rate Cut?
Despite the current standoff, Powell has left the door open for a potential rate cut at the Fed’s September 2025 meeting, though he emphasized that any decision would depend on incoming economic data. Traders have scaled back expectations for a September cut, with the CME FedWatch tool showing a 46% probability of a quarter-point reduction, down from 64% before Powell’s recent comments. The Fed’s cautious approach reflects the complex interplay of Trump’s tariffs, which could both slow growth and increase inflation, making monetary policy decisions less straightforward.
Conclusion
Jerome Powell’s refusal to bow to President Trump’s pressure for immediate interest rate cuts has intensified their public feud, with the historic double dissent from Fed governors Waller and Bowman underscoring internal divisions. While Powell argues that maintaining rates is necessary to manage inflation exacerbated by Trump’s tariffs, the president sees this as a direct hindrance to his economic agenda. The clash raises critical questions about the Federal Reserve’s independence and the potential consequences of political interference in monetary policy. As the September meeting approaches, all eyes will be on whether Powell can maintain his stance or if mounting pressure—both internal and external—will force a shift in the Fed’s approach.
