The federal reserve is expected to keep the short -term interest rate unchanged on Wednesday for the fifth consecutive meeting, a step that will likely confirm the deep division between the vision of his president, Jerome Powell, and his main critic, President Donald Trump, for the economy.
Divides within the federal reserve
Certainly, the Federal Reserve itself is increasingly divided into its next steps, and many economists expect that two members of the Federal Reserve Governor – both of whom are appointed by Trump – may oppose the decision to confirm on Wednesday and call for reducing interest rates. If this happens, this will be the first time that two conservatives voted against the president since 1993.
However, the gap between the views of the Federal Reserve Federal Reserve Committee, headed by Powell, and the White House is unusually large. In several areas, Trump’s opinions are sharply contradictory to the opinions of the Federal Reserve Park; What warns of potential clashes for the coming years, even after the end of the Powell state in May 2026.
The difference in economic philosophies
For example, Trump says that since the American economy is going well, the Federal Reserve must reduce interest rates, as if the United States has an excellent shares company that must pay less to borrow from a risky startup company.
But federal reserve officials – and almost all economists – see the matter in another way: the strong economy means that interest rates must be relatively high, to prevent high temperature and hypothesis.
“I argue that our interest rates are higher,” said Gennadi Goldberg, head of the American interest rate strategy at TD CIA, said. Because our economy is going well, not though. ”
A dispute over the cost of government debt
Trump claims that the federal reserve in general and Powell in particular cost American taxpayers hundreds of billions of dollars in interest payments by not reducing borrowing costs. However, federal reserve officials do not believe that their job is to reduce the interest rates that the government pays on treasury bonds.
Most economists fear that if they do so, they will risk failure in one of the main tasks that Congress granted them: fighting inflation.
Economists say that if the financial markets see that the federal reserve focuses on keeping low borrowing costs to help the government – instead of focusing on its goals assigned by Congress, which is the stability of prices and the maximum employment – it is likely that Wall Street investors are worried about future inflation, at higher interest rates to keep treasury bonds; This pays borrowing costs throughout the economy to rise.
The controversy of inflation and the goals of the federal reserve
For his part, Trump says that “there is no inflation”; So the Federal Reserve must reduce its short -term price, which is currently in the range of 4.25 percent – 4.50 percent, which was raised in 2022 and 2023 to combat high prices. The interest rate of the Federal Reserve often affects – but not always – the long -term borrowing costs of mortgage, car loans and credit cards.
The inflation has decreased sharply, as a result; Federal reserve officials indicated that they will reduce interest rates up to half a percentage this year. However, it has risen slightly in the past two months, and many of these policy makers, including Powell, want to make sure that customs tariffs will not raise inflation much more before they take any step.
Inflation accelerated to 2.7 percent in June from 2.4 percent in May, the government said earlier this month, which is higher than the Federal Reserve of 2 percent. The basic prices, which exclude food and fluctuating energy categories, rose to 2.9 percent of 2.8 percent.
Trump’s continuous attack
Last week, Trump and many White House officials intensified their attacks on Powell on interest rates. They also criticized the increasing costs of renewing the Federal Reserve for two buildings; What raised questions about whether the president is seeking to dismiss Powell for good reasons instead of just political differences.
Trump and Powell were involved in an extraordinary confrontation in front of the cameras about the cost of the project during Trump’s visit to the construction site last Thursday. On Monday, Trump was more conservative in his comments on the Federal Reserve during a joint appearance in London with British Prime Minister Kiir Starmer. “I will not say anything bad,” Trump said. We advance very well, even without lowering interest rates. ” But he added, “The smart person will decrease.”
Market expectations and visions collision
Some economists expect that the Federal Reserve will reduce its main price by a quarter of a point in September, instead of July, and say the delay for two months will not make a big difference in the economy.
However, beyond just the timing of the first reduction, there is still a huge gap between what Trump wants and what the Federal Reserve will think: Federal reserve officials indicated in June only two reductions this year and one reduction in 2026. They expected their main price still at 3.6 percent at the end of next year. While Trump causes them to reduce it to only 1 percent.
The Wall Street investors also expect a relatively small number of discounts: two this year and two in 2026, according to the pricing of the futures contracts of the CME group.
According to the Federal Reserve’s expectations, only two officials in June supported three discounts this year, are likely to be appointed by Trump from his first term: the governor Christopher, Wald and Michelle Bowman.
Wallet gave a speech earlier this month that supports the interest rate reduction in July, but for a completely different reason from Trump: it is concerned that the economy is declining. He said: “The economy is still growing, but its momentum slowed down greatly, and the risk of high unemployment has increased.”
He also stressed that customs definitions will create a single increase in prices, but will not lead to constant inflation.
However, most federal reserve officials believe that the labor market is relatively healthy – with a low unemployment of 4.1 percent – and as a result; They can take enough time to make sure everything is going well.
“The continuous solid economic conditions of the Federal Reserve allow time to evaluate the wide range of carefully received data,” said Susan Collins, head of the Federal Reserve in Boston. Thus, in my opinion, the approach (active patience) of monetary policy is still appropriate at this time. ”
