The Federal Reserve held its first two-day Federal Open Market Committee (FOMC) meeting of President Donald Trump’s second term in the White House. Fed officials kept interest rates unchanged, leaving the benchmark federal funds rate at a range of 4.25% and 4.5%. Wall Street widely expected the conclusion. Chair Jerome Powell offered little forward guidance on what comes next, though investors believe the Eccles Building, amid elevated inflation, will keep the rate-cutting cycle on pause until June. This is not what the 47th president desired to hear on Jan. 29.
Trump Bashes the Fed
President Trump took to Truth Social soon after the Fed chief finished his post-meeting press conference, lambasting the US central bank for its policy performance. He accused the Fed of failing "to stop the problem they created with inflation" and that it has "done a terrible job on bank regulation."
"If the Fed had spent less time on DEI, gender ideology, 'green' energy, and fake climate change, Inflation would never have been a problem," the president wrote. "Instead, we suffered from the worst Inflation in the History of our Country!"
His remarks came soon after telling the World Economic Forum that he would "demand that interest rates drop immediately." He added: "And likewise, they should be dropping all over the world. Interest rates should follow us all over.” At a White House event, Trump later said he knows better than the current monetary regime. “I think I know interest rates much better than they do, and I think I know it certainly much better than the one who’s primarily in charge of making that decision,” Trump said.
According to Powell, he has yet to meet with Trump and would refrain from commenting publicly on what the president has said. “I’m not going to have any response or comment whatsoever on what the president said. It’s not appropriate for me to do so,” Powell stated at his press conference, stressing and iterating the central bank’s independence. “The public should be confident that we will continue to do our work as we always have, focusing on using our tools to achieve our goals and really keeping our heads down and doing our work.”
When confronted about how the Fed will craft policy under the new administration, especially regarding the potential effects of tariffs, Powell noted a broad array of possibilities. The Fed Chair says everything will depend on what is outlined, what countries are targeted, and how nations will retaliate. “The best we can do is what we’ve done, which is study up on this and look at the historical experience, read the literature, and think about the factors that might matter,” Powell continued. “And then we’ll just have to see how it goes.”
Wall Street Watches the Drama
Until Powell’s term expires in 2026, the financial markets will closely monitor Trump's relationship with the Federal Reserve. After suggesting early in the campaign that he would want to remove Powell from the most powerful position in the land, Trump tergiversated and espoused that he could keep his job until his time is complete later next year. Powell, meanwhile, told reporters that it is “not permitted under the law” to fire him and that he anticipates a cordial relationship.
Treasury Secretary Scott Bessent had proposed the idea of a “shadow Fed Chair.” This would involve President Trump nominating someone well in advance of Powell stepping down, meaning investors would no longer care what Powell said. He walked back this concept and confirmed to the press that Powell could stay until 2026. It should be noted that former Fed Gov. Kevin Warsh is considered the frontrunner to succeed Powell.
But while the Trump-Powell battle will be popcorn entertainment, others within the institution have averred the necessity of waiting to see what policies the new administration will present. “We should also refrain from prejudging the incoming administration’s future policies,” said Fed Gov. Michelle Bowman in a speech earlier this month. “Instead, we should wait for more clarity and then seek to understand the effects on economic activity, the labor market, and inflation.”
For now, it already appears that Trump 2.0 will be more like Trump 1.0 regarding the Fed. The difference this time is that the American people will need to watch out for Truth Social rather than X.
