Trump goes to war with Jerome Powell over rate cuts
In this DML Report…
Federal Reserve Chair Jerome Powell warned that President Donald Trump’s new tariffs will likely drive up inflation and slow economic growth more than expected, speaking at a business journalists’ conference in Arlington, Virginia. Powell noted the tariffs, which include a 10% rate on all imports and 25% on Canada and Mexico as part of Trump’s “Liberation Day” policy launched April 2, are “significantly larger” than anticipated, risking a persistent inflation spike. The Fed, tasked with keeping inflation at 2% and maximizing employment, faces a tough balancing act as the economy added 228,000 jobs in March with a 4.2% unemployment rate, but consumer confidence is sinking over fears of rising prices.
Trump fired back on Truth Social, demanding Powell cut interest rates—currently steady at 4.3%—to boost the economy, accusing him of “playing politics” as stocks fell for a second day, with the S&P 500 down over 10% since the tariff announcement. Powell emphasized the Fed’s focus on preventing a one-time price surge from becoming a lasting inflation problem, noting global markets are reeling, with Japan’s Nikkei and Europe’s Stoxx 600 each dropping 2.7%. China retaliated with a 34% tariff hike on U.S. goods, escalating trade war tensions, while prediction market Kalshi pegged U.S. recession odds above 60% for 2025, up from 43% in March per a Deutsche Bank survey.
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Powell’s remarks demonstrate a growing economic rift, as Trump’s team, including Press Secretary Karoline Leavitt, defends the tariffs as a proven formula to revive U.S. manufacturing, despite warnings from economists like those at JPMorgan, who now see a 40% recession chance. The Fed is holding rates steady for now, with Powell stressing the need to monitor inflation expectations and wait for clearer data on the tariffs’ impact. The central bank is bracing for a “highly uncertain outlook” with risks of higher unemployment and inflation, while Trump insists the policy will bring long-term wealth, even as markets and consumers feel the immediate pinch.