The Federal Reserve Likely to Resist Trump's Pressure to Cut Interest Rates

As U.S. President Donald Trump returns to office, the Federal Reserve faces mounting political pressure to reduce interest rates. However, all indicators suggest that the central bank will maintain its cautious approach, preserving its independence despite the increasingly tense political climate.

The Fed is scheduled to meet next week for the third time since Trump’s return to power. Market expectations point to the bank keeping interest rates steady in the 4.25% to 4.50% range, where they have remained since December. This comes amid a flurry of public criticism from Trump, who has repeatedly urged the Fed to lower rates and has openly attacked Fed Chair Jerome Powell, calling him a “big loser.”

Federal Reserve officials have expressed their desire to monitor the economic impact of Trump’s aggressive protectionist policies, which include sweeping tariffs on imports—even on goods like cocoa that the U.S. does not produce domestically. While core economic indicators like unemployment (4.2% in April) and inflation (2.3% in March) remain within acceptable bounds, the Fed has revised its economic forecasts, anticipating slower growth, higher inflation, and rising unemployment.

According to Loretta Mester, former President of the Cleveland Federal Reserve (2014–2024), maintaining current rates is the “right course of action” for now, with a readiness to cut rates swiftly should a genuine economic slowdown occur. She warns that a premature rate cut may be interpreted as a sign of panic, potentially triggering adverse market reactions.

Economist Belinda Roman of St. Mary’s University in Texas echoes this concern, noting that if the Fed acts too quickly, markets may assume a crisis is looming. “If the Fed appears panicked, everyone else will panic too,” she stated, underlining the importance of measured responses.

Despite Trump’s ongoing attempts to influence monetary policy—including suggestions that Powell should be removed—Federal Reserve officials remain committed to data-driven decision-making. Roman emphasizes that the Fed must maintain composure amid political pressure to safeguard market stability.

In conclusion, while Trump’s administration continues to push for looser monetary policy to stimulate economic activity, the Federal Reserve is expected to hold firm, prioritizing long-term economic stability and institutional credibility over short-term political demands.