Trump pressures Fed chief on rate cuts while inflation concerns persist from tariffs

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The Federal Reserve faces mounting pressure to cut interest rates at its September 16-17 meeting as economic indicators present conflicting signals. CME FedWatch projects an 85% probability of a 25 basis point rate cut, driven primarily by concerning employment data that showed only 75,000 jobs added in July—well below expectations. The Bureau of Labor Statistics also revised May and June employment figures downward by 258,000 jobs, suggesting a significant labor market slowdown.

This employment weakness creates a challenging situation for Fed Chair Jerome Powell, who must balance the central bank’s dual mandate of maintaining stable prices and maximum employment. For months, President Trump has pressured Mr. Powell to lower rates to help borrowers, but the Fed has resisted due to inflation concerns stemming from the administration’s aggressive tariff policies.

The Trump administration recently implemented sweeping tariffs ranging from 15% to 41% on over 67 countries, bringing import taxes to century-high levels. These include a 10% blanket tariff on all imports and negotiated rates with the European Union, Japan, and South Korea. The National Retail Federation and import-dependent industries have urged moderation, warning that companies cannot absorb these costs long-term.

Fed officials worry these tariffs could fuel inflation as they work through supply chains, complicating rate decisions. However, consumer prices have remained relatively stable despite initial predictions of significant tariff-driven inflation. Current inflation stands at 2.7% annually, slightly above the Fed’s 2% target but within a manageable range.

Political pressure on Mr. Powell continues to intensify. Mr. Trump fired the Bureau of Labor Statistics chief, alleging job data manipulation, and nominated Heritage Foundation economist E.J. Antoni as replacement. The president also demanded Fed Governor Lisa Cook’s resignation over mortgage fraud allegations, with housing finance official William Pulte accusing her of claiming two primary residences simultaneously.

Mr. Trump has threatened to sue Mr. Powell over Fed building renovation costs, while Sen. Tommy Tuberville daily calls for the chair’s firing on social media. Although  Mr. Trump hasn’t attempted to remove Mr. Powell directly, he’s preparing for succession planning. Treasury Secretary Scott Bessent revealed 11 “very strong candidates” have been identified for when Mr. Powell’s term expires in May, with interviews scheduled around Labor Day.

The Senate is currently considering Trump appointee Stephen Miran for a Fed Board vacancy. Despite the pressure, Mr. Powell maintains focus on economic data and the Fed’s mandate, dismissing political criticism. 

All eyes turn to his Friday address at the Jackson Hole economic symposium for potential hints about September’s rate decision.

Read more: Fed chief eyes long-awaited rate cut in September