Fed Chairman Jerome Powell and his colleagues are expected to keep interest rates unchanged on Wednesday. President Trump criticized the central bank for not lowering interest rates. Kevin Dietsch/Getty Images Closed subtitles
The Fed will likely keep interest rates stable late Wednesday due to concerns that President Trump's tariffs will reinflation and slow economic growth.
Despite the president's repeated demands for the Fed to lower interest rates, the decision of financial markets to keep its benchmark lending rate between 4.25% and 4.5% is widely expected.
Since the last meeting held by the central bank in March, Trump has imposed nearly 10% tariffs on U.S. imports, and 145% import taxes on China. On average, when the global trade war deepened the Great Depression since at least the 1930s, Americans now pay higher taxes on imported products than ever before.
“So far, the announced tariff levels are much larger than expected,” Fed Chairman Jerome Powell told the Chicago Economic Club last month. “The economic impact may be that, which will include higher inflation and slower growth.”
Trade tensions have led to a sharp decline in consumer confidence. But they have not invested a lot of dents in the job market yet. Recruitment in April was only down from a small amount in the previous month.
Inflation was tame as well a month before the new tariffs. Prices in March rose 2.3% from a year ago, according to the Fed's preferred inflation standard.
Trump stressed the recent decline in gasoline prices as he called on the Fed to lower interest rates.
"There are good news for lower energy, lower mortgages, strong employment and more," the president wrote in a social media post last week. "Without inflation, the Fed should slow it down!!!"
President Trump goes to the White House East Room to sign executive orders. Saul Loeb/AFP via Getty Images Closed subtitles
Trump has frequently criticized Powell and his Fed colleagues for not lowering interest rates, even suggesting he might try to fire the Fed chairman. However, the president appears to have withdrawn from the threat after a sharp decline in stock markets last month.
"Why should I do this?" Trump told NBC News in an interview on Sunday. "I'll change him very quickly anyway. You know, it's in a very short time."
Powell's term as the Federal Reserve chair will expire next May.
The Supply Management Institute's business investigation found that Trump's tariffs are destroying supply chains and raising prices.
"People are very concerned about the inflationary impact of tariffs in our industry," said a manager at a metal manufacturing plant. "Domestic producers are charging for everything because they can."
As long as tariffs threaten price increases, the Fed will tend to keep interest rates relatively high to prevent inflation from soaring again. However, if the job market softens and the unemployment rate begins to climb, the calculation may change. Often, this will push central banks to lower interest rates.
The worst case scenario for the Fed is if tariffs drive inflation and unemployment at the same time. The central bank will then be torn apart between trying to control prices at higher rates or resist job losses by lowering rates.