As Trump ramps up attacks on the Federal Reserve, Chair Powell refuses to change course

"As long as the economy is in solid shape, we think the prudent thing to do is to wait and see what those effects might be," Powell said, referring to the sweeping duties Trump has imposed this year.

Powell's comments underscored the divide between the U.S. central bank's leader and the Trump administration. Trump has repeatedly urged the Fed to cut its key rate, which he says would save U.S. taxpayers billions of dollars on interest costs on the federal government's massive debt, and boost the economy. The fight has threatened the Fed's traditional independence from politics, though since the Supreme Court signaled the president can't fire the chair, financial markets haven't responded to Trump's criticism.

The Fed chair also said that without tariffs, the Fed would probably be cutting its key rate right now. The central bank went "on hold" after it saw how large Trump's proposed tariffs were, Powell said, and economists began forecasting higher inflation.

At the same time, Powell did not rule out a rate cut at the Fed's next policy meeting July 29-30.

"I wouldn't take any meeting off the table or put it directly on the table," Powell said. Most economists, however, expect the Fed won't reduce rates until September at the earliest.

On Monday, the president attacked Powell again and extended his criticisms to the entire Fed governing board, which participates in interest-rate decisions.

"The board just sits there and watches, so they are equally to blame," Trump said. The attack on the board ratchets up pressure on individual Fed officials, such as Governor Chris Waller, who have been mentioned as potential successors to Powell, whose term ends in May 2026.

When asked during a panel discussion with other central bankers what keeps him awake at night, Powell referred to the fact that there are just 10 months left in his term.

"All I want and all anybody at the Fed wants is to deliver an economy that has price stability, maximum employment, financial stability," he said.

Powell was also asked whether Trump's attacks make his job harder, and he responded, "I'm very focused on just doing my job."

The other central bankers onstage, including Christine Lagarde, president of the European Central Bank, Kazuo Ueda, governor of the Bank of Japan, and Andrew Bailey, governor of the Bank of England, joined the audience in applauding Powell's comment.

"We would do exactly the same thing as Jay Powell has done," Lagarde said. "The same thing."

On Monday, Trump posted a note on social media that listed 44 countries in order of the interest rates set by their central banks. The list showed that Switzerland, Cambodia, and Japan have the lowest short-term rates of 0.25% to 0.5%. "Should be here," Trump wrote on the list, referring to the Fed.

Yet central banks typically lower their rates when their economies are weaker, to boost borrowing and spending and support growth. The Fed cut its short-term rate to nearly zero during the pandemic for that reason. It rapidly lifted borrowing costs in 2022 and 2023 to combat the worst inflation spike in four decades.

Trump has been particularly focused on the idea that Fed rate cuts would sharply reduce the government's borrowing costs.

Yet it's not necessarily the case that a cut would lower other borrowing costs for things such as mortgages, car loans, or business loans. The short-term rate the Fed controls influences other interest rates, but the markets also play a significant role.

As a result, a rate cut by the Fed wouldn't automatically lower the interest rates paid by Treasury securities, particularly longer-term rates such as the yield on the 10-year Treasury, which strongly affects mortgage rates.

In fact, when the Powell Fed first cut its short-term rate last September, the 10-year yield actually rose, lifting mortgage rates and other borrowing costs.

The Fed has kept its key short-term interest rate unchanged this year, at about 4.3%, after cutting it three times in 2024.

At a news conference in June, Powell suggested that the central bank would "learn a great deal more over the summer" about whether President Donald Trump's sweeping tariffs would push up inflation or not. The comment suggested the Fed wouldn't consider cutting rates until its September meeting.

Yet a few days later, Fed governors Waller and Michelle Bowman, who were both appointed by Trump, said that it was unlikely the tariffs would lead to persistent inflation. Both also indicated that they would likely support reducing the Fed's rate in July.

So far, inflation has mostly continued to cool, despite the imposition of the duties on nearly all U.S. imports. Consumer prices rose just 2.4% in May compared with a year earlier, not far from the Federal Reserve's 2% target and much lower than a year ago.