The Fed chairman will appear before Congress today and tomorrow, first before the House Financial Services Committee on Tuesday morning and again before the Senate Banking Committee on Wednesday morning.
Powell will be given the chance to justify why he and other members of the Federal Open Market Committee (FOMC) have thus far in 2025 refused to lower the base rate from its current level of 4.25 to 4.5%.
The FOMC chairman has been consistent in his reasoning, as well as distancing himself from political rhetoric, but has still faced criticism from economists who say his relatively tight monetary stance is unjustified.
Trump urged politicians in the two meetings this week to push Powell hard for why he hasn’t cut the base rate—and granted the president his wish.
“Would save the USA 800 Billion Dollars Per Year, plus. What a difference this would make. If things later change to the negative, increase the Rate.”
This push for lower rates is the opposite of Trump’s ask on the campaign trail last year. While running for president, Trump claimed Powell was playing politics and would hand the Biden camp an economic boon if he cut.
Almost as soon as he won the Oval Office, Trump changed tact and began asking Powell to cut—claiming the economy was stable enough to sustain a lower rate and increased economic activity.
Powell and the FOMC have been clear on why they don’t want to cut, citing factors which may put the two aspects of their dual mandate—maximum employment and 2% inflation—in conflict.
While the markets may prefer a cut, what really spooks analysts and investors alike is when Trump’s pressure over the base rate bleeds into questions of tampering.
While Trump’s claim that the FOMC’s refusal to cut the base rate has cost the economy $800 billion is without explanation, some economists more widely believe that Powell should not be basing current decisions on potentially inflationary factors down the line.
For example, the Oval Office has changed its stance on tariffs a number of times, be it via 90-day pauses or agreements with certain nations, or threats of even larger hikes on the likes of the EU.
But experts point out that the sharpest end of these threats have yet to come to fruition, and that both inflation data and employment data has remained fairly flat over the past few months.
Jeremy Siegel, emeritus professor of finance at the Wharton School of the University of Pennsylvania, for example, writes: “Treating a tax-induced price level jump as a reason to stay restrictive is simply bad economics. A 10% sales tax does not warrant monetary tightening; neither does a tariff schedule that is a tax on inputs. The Fed Funds Rate should already be almost 75-100 basis points lower—around 3.5%—to match the economy’s true neutral rate.”
