June 21 2025 - 8:30pm
Judging by the “dot-plot” from Wednesday’s Federal Reserve Board meeting, in which the governors indicated their expectations for future interest rates, sentiment at the American central bank is, if anything, growing hawkish. Although some governors expect to make two or more rate cuts of a quarter of a percent between now and the end of the year, others are dialing back those expectations to just one or no cuts.
Nonetheless, the message delivered by Fed Chairman Jerome Powell at the press conference which followed the meeting appeared to capture the Board’s sentiment: until the data reveals a change in the direction of the economy, they’ll stick to their guns.
That caution doesn’t sit well with Donald Trump. For months, the US President has been pressing the Fed to cut rates to stimulate the economy, asking for as much as 2.5% to be taken off borrowing costs. As the central bank has ignored him, maintaining its independent stance in the setting of monetary policy, Trump’s patience has worn thin. He has become openly critical of Powell, yesterday calling him a “numbskull” and an “American disgrace”, while occasionally threatening to remove him before the end of his term next year.
This week, though, Trump appeared to find an ally in Christopher Waller, a Fed governor who the President appointed in 2020 to a ten-year term. In an interview on the business channel CNBC, Waller called for rate cuts to begin as soon as next month, arguing that the anticipated inflation from Trump’s tariffs hadn’t yet materialized — and that even if it did later in the year, it would be a one-off shock. In the meantime, he said the job market was deteriorating quickly, and that the Fed needed to take preemptive action to forestall a recession.
Waller’s is most likely a minority opinion. The data the Fed uses to inform its decisions is far from conclusive, suggesting the US economy may now be at a crossroads. On the whole, the “soft” data, which captures sentiments about future expectations for growth and prices, suggests the economy is slowing and inflation is rising. But the hard data, which reports actual employment and price changes over recent months, mostly suggests an economy that remains resilient.
Complicating the Fed’s task is that while its mantra is to follow the data, the data has grown murkier. Tight budgets at the Bureau of Labor Statistics, which conducts the surveys estimating both employment and inflation, are forcing its statisticians to increasingly guess when they lack hard figures. So the job market may be weaker or stronger than thought; the same applies for inflation. Most Fed governors will therefore wait to see clear movement one way or the other before they make a move.
What makes Waller’s public declaration so newsworthy, therefore, is not that there is a difference of opinion on the Board — there always is. Rather, his going public so openly has raised the question as to whether Waller, who is considered a candidate to succeed Powell as chairman next year, is trying to impress the boss.
If such public disagreement becomes widespread, and prospective Fed chairmen start competing for the President’s ear, bond investors may grow even more jittery than they already are. On the whole, the Fed only controls short-term interest rates, with bond rates determined by what investors are willing to accept. If the Fed looks to be losing its independence, investors will likely demand a greater risk premium on what they lend the US government.
Faced with this risk, Fed governors may choose to fight the President to safeguard their independence. The one thing which thus seems certain is that there will be more bickering between Trump and the central bank.
John Rapley is an author and academic who divides his time between London, Johannesburg and Ottawa. His books include Why Empires Fall: Rome, America and the Future of the West (with Peter Heather, Penguin, 2023) and Twilight of the Money Gods: Economics as a Religion (Simon & Schuster, 2017).
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