They argue that inflation has steadily cooled and high borrowing costs are no longer needed to restrain price increases. The Fed sharply ramped up its short-term rate in 2022 and 2023 as pandemic-era inflation spiked.
The heightened scrutiny shows that even as the Trump administration backs off its threats to fire Powell, the Fed is still subject to unusually sharp political pressures, despite its status as an independent agency.
That’s not entirely true: Grocery prices have jumped 0.5% in two of the past three months and are up 2.4% from a year ago. Gas and oil prices have declined — gas costs are down 10% from a year ago — continuing a longer-running trend that has continued in part because of fears the economy will weaken. Still, AAA says gas prices nationwide average $3.18 a gallon.
Without tariffs, economists say it’s possible the Fed would soon reduce its benchmark rate, because it is currently at a level intended to slow borrowing and spending and cool inflation. Yet the Fed can’t now cut rates with Trump’s broad tariffs likely to raise prices in the coming months.
Vincent Reinhart, chief economist at BNY, said that the Fed is “scarred” by what happened in 2021, when prices rose amid supply snarls and Powell and other Fed officials said the increase would likely be “transitory.” Instead, inflation soared to a peak of 9.1% in June 2022.
This time they will be more cautious, he said.
“That’s a Fed that is going to have to wait for evidence and be slow to adjust on that evidence,” Reinhart said.
“You could imagine a world where there isn’t pressure from the Trump administration and they cut rates … sooner, because they feel comfortable making the argument that they’re doing so because of the data,” he said.
Powell has said that the impact of the tariffs on inflation could be temporary — a one-time price increase — but most recently said it “could also be more persistent.” That suggests that Powell will want to wait, potentially for months, to ensure tariffs don’t sustainably raise inflation before considering a rate cut.
Some economists forecast the Fed won’t cut rates until its September meeting, or even later.
Separately, Musk criticized the Fed Wednesday for spending $2.5 billion on an extensive renovation of two of its buildings in Washington, D.C.
“Since at the end of the day, this is all taxpayer money, we should certainly look to see if indeed the Federal Reserve is spending $2.5 billion on their interior designer,” Musk said. “That’s an eyebrow raiser.”
Fed officials acknowledge that the cost of the renovations have risen as prices for building materials and labor have spiked amid the post-pandemic inflation. And former Fed officials, speaking on background, say that local regulations forced the Fed to do more of the expansion underground, rather than making the buildings taller, which added to the cost.
Meanwhile, Kevin Warsh, a former Fed governor and a potential candidate to replace Powell as chair when Powell’s term expires next year, said recently that the Fed has attracted greater scrutiny because of its failure to keep prices in check.
“The Fed’s current wounds are largely self-inflicted,” he said in a speech during an International Monetary Fund conference in late April, in which he also slammed the Fed for participating in a global forum on climate change. “A strategic reset is necessary to mitigate losses of credibility, changes in standing, and most important, worse economic outcomes for our fellow citizens.”
Powell, for his part, said last month that “Fed independence is very widely understood and supported in Washington, in Congress, where it really matters.”
