President Trump and his team are not happy with Jerome Powell. Russell Vought, Trump’s budget chief, says Powell has “grossly mismanaged the FED.” Vought points to expensive renovations at the FED’s D.C. offices, calling them wasteful. Trump wants lower rates, but Powell is holding back. This tension is shaking up the world of finance.

Trump has been pressing the FED for aggressive rate cuts. He believes lower rates will ease inflation concerns and fuel growth. Powell, however, stays cautious. He points to a strong economy that can handle current rates. Yet with inflation still above 2%, the debate over rate cuts keeps heating up.

FED Faces Rate Cut Pressure as Inflation Fears Linger

FED Governor Christopher Waller is clear: a rate cut should happen soon. He says the current policy is “too tight.” Inflation, driven by Trump’s tariffs, is a big worry, but Waller believes it will only be a temporary spike. He argues the FED should not fear a small bump in inflation.

Waller is not alone. Michelle Bowman also supports a cut at the FED’s July meeting. But others, like St. Louis FED President Alberto Musalem, are cautious. Musalem wants to see more data on inflation before making a move. The FED’s June meeting minutes show a split, with some ready for cuts and others warning that inflation might stick around.

Despite the divide, Waller insists the FED needs to move now. “It’s not political,” he says, aligning his stance with Trump’s calls for easier policy. This clash inside the FED could shape finance markets in the coming weeks.

FED’s Balance Sheet Shrink Continues, but For How Long?

Waller also addressed the FED’s massive balance sheet. The FED’s holdings once peaked at $9 trillion during COVID-19. Now, the FED is cutting back, reducing its bond holdings to drain excess liquidity. Waller says the FED can keep shrinking its balance sheet for “some time.”

The FED currently holds around $6.7 trillion, but Waller sees it dropping to a “hypothetical” $5.8 trillion. He believes the FED should aim for about $2.7 trillion in reserves, down from the current $3.3 trillion. This drawdown, known as quantitative tightening (QT), is part of the FED’s plan to return to a normal policy stance.

However, there are challenges. The FED’s holdings are heavy with long-term bonds. Waller suggests shifting toward shorter-term Treasury bills. This process will take time, but it may help manage inflation and support future rate cuts if needed. The FED must find the right balance between reducing its holdings and keeping the financial system stable.

FED Debates Rate Cut as Finance Markets Watch Closely

The FED is under intense pressure from Trump, who sees lower rates as key to fighting inflation and boosting finance markets. Waller and Bowman push for a rate cut, seeing room to ease policy without sparking runaway inflation. Meanwhile, Powell and others want to wait, fearing tariff-related inflation could last longer than expected.

Markets are watching every signal. If the FED cuts rates in July, it could fuel a rally in finance markets, crypto included. However, if inflation surprises to the upside, the FED may have to tighten again later. The uncertainty keeps traders alert, as Trump continues to push for aggressive rate cuts.

What’s Next for the FED, Trump, and Inflation?

As Trump increases pressure, the FED must decide its next move. Waller’s potential rise as the next FED chair could shape the path forward. Rate cuts may come soon if inflation data stays mild. But if tariffs push prices up, Powell and others may hold back.

Finance markets, including crypto, will react fast to any FED decision. Inflation, Trump’s policies, and the FED’s next steps are all tied together now. The coming weeks will be crucial for rate cuts, inflation control, and the balance of power between Trump and the FED.