U.S. monetary policy is once again at the center of a heated debate, with President Donald Trump once again pointing fingers at Federal Reserve Chair Jerome Powell. Just as Powell was speaking at a conference in Arlington, Virginia, Trump made a social media appeal urging Powell to immediately cut interest rates and accusing him of taking a political stance by not doing so.
President Trump's Appeal: Cut Rates Immediately
"This would be the PERFECT time for Fed Chair Jerome Powell to cut interest rates," President Trump thundered on his social network Truth. "Energy prices are falling, interest rates are falling, inflation is falling, and even eggs are down 69%. Jobs are on the RISE, all within two months: A GREAT VICTORY for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!"
President Trump paints a rosy economic picture, asserting that current conditions – with falling inflation and a growing labor market – fully justify a reduction in interest rates. His accusation of "playing politics" suggests that, in his view, Powell is keeping rates high for reasons other than purely economic ones, perhaps aiming to hinder his administration's policies.
Powell's Response: Caution and Evaluation Waiting
Jerome Powell's words, as reported, seem to offer a different and more cautious perspective. Powell acknowledged the market reaction, emphasizing how the tariffs announced by the current administration turned out to be higher than analysts had expected. This surprise brings greater uncertainty regarding both the magnitude of the effects these tariffs will have on the economy and their duration over time.
Contrary to previous statements where he did not expect any temporary consequences, Powell's language now appears more uncertain. He emphasized the importance of keeping long-term inflation projections anchored at 2%, confirming that, at this point, the Federal Reserve will not take actions on interest rates. The Fed prefers to wait and carefully assess the repercussions of the new immigration, trade, and regulatory policies imposed by his administration before making any decisions.
President Trump's Perspective: From President Trump's point of view, the economy is showing signs of strength and a reduction in inflation, creating the ideal opportunity to further stimulate growth through lower interest rates. Lower rates would make borrowing cheaper for businesses and consumers, encouraging investment and spending. His accusation of "playing politics" may reflect his belief that Powell is holding back growth for ideological reasons or to counter his administration's policies.
Powell/Fed's Perspective: The Federal Reserve, led by Powell, is taking a more cautious approach. The unexpected rise in tariffs introduces a significant element of uncertainty. Tariffs, as previously discussed, tend to increase prices, creating potential inflationary pressures. In this context, lowering interest rates could paradoxically further fuel inflation, undermining the Fed's efforts to maintain price stability. The Fed therefore prefers to wait and observe the real impact of these policies before acting, to avoid making premature decisions that could have negative long-term consequences for the economy. The priority remains to keep inflation under control and ensure that long-term inflation expectations remain anchored.
Impact of an Immediate Rate Cut:
If the Federal Reserve were to yield to President Trump's pressures and immediately lower interest rates, the consequences could be mixed:
1. Potential short-term stimulus: A cut in rates could provide an immediate boost to the economy, reducing financing costs and encouraging spending and investment. This could be seen as a "victory" in the short term, as hoped by President Trump.
2. Risk of rising inflation: However, if the tariffs were to actually lead to a widespread increase in prices, a rate cut could exacerbate inflation. Increased liquidity in the system, combined with higher import costs, could create a vicious cycle of rising prices.
3. Loss of Fed credibility (not to be underestimated): If the Fed acted under political pressure and this led to negative consequences for inflation, its credibility as an independent institution focused on economic stability could be compromised.
Conclusions on the World of Cryptocurrencies.
The cryptocurrency market, including Bitcoin, may not react immediately and sharply to these macroeconomic developments. The dynamics of this market are often driven by industry-specific factors, and its correlation with traditional monetary policies may be less direct compared to other assets. However, general economic uncertainty and potential inflationary pressures stemming from current policies could influence investor sentiment in the medium to long term.