U.S. President Donald Trump is pressuring the Federal Reserve (Fed) to lower interest rates, while the Fed is maintaining a cautious stance. Jerome Powell, the Fed chair, recently reaffirmed his commitment to focus on "price stability and safeguarding the financial system" despite the controversy over the "political interference" claimed by President Trump.
President Trump has repeatedly argued for the need to lower interest rates due to financial market instability triggered by tariff policy and economic slowdown. However, the Fed is signaling to the market that the likelihood of lowering interest rates at this time is low. In fact, forecasts in the futures market suggest that rates could be cut up to five times this year, but the Fed's position is to delay actions until clear evidence of economic slowdown emerges.
Former Fed Vice Chair Richard Clarida (currently a global advisor at PIMCO) noted, "The Fed is focusing on concrete indicators rather than future predictions or models," and stated, "The possibility of lowering rates based solely on the potential for slowdown is low."
Chair Powell reaffirmed the existing policy direction in a speech on the 5th, stating, "We will thoroughly manage expectations to prevent short-term price increases from leading to long-term inflation." Recently, there are also concerns within the Fed that tariff policy could stimulate inflation.
Fed Governor Adriana Kugler analyzed, "Trade policy has a more immediate impact on inflation than on growth," and added, "Some consumers may stock up on goods before tariff increases, leading to a temporary boost in consumption."
In this context, some economists warn that the consumer price index (CPI) for March, which is set to be announced on the 11th, may show signs of easing, but prices could surge again between April and June due to the effects of tariff increases. Joe Brusuelas, chief economist at consulting firm RSM, said, "The March figure may be a transient phenomenon," and emphasized that "investors and policymakers should not overreact to this figure."
Another reason the Fed is not moving quickly is that the direction of the trade war remains uncertain. There is no clear signal on whether President Trump will use high tariffs as a temporary pressure tactic or establish them as permanent import taxes.
Chair Powell emphasized, "In order to assess the influence of tariff increases, the targeted items, tax rates, duration, and retaliatory measures by counterpart countries must be clarified," adding that "it will be difficult to take action as long as these uncertainties persist."
Many evaluations suggest that the financial market does not require immediate intervention from the Fed. While stock price volatility has increased, the credit market is functioning normally, and there are no clear signs of bankruptcy among major financial firms. Steven Kelly, a research director at Yale University's Financial Stability Program, stated, "If financial system instability is actually detected, the Fed can move more quickly," and predicted, "In that case, maintaining stability will be a higher priority than concerns over inflation or recession."