Trump, Powell, & the Federal Reserve Board

On August 5, 2024, Cogport posted that the Federal Reserve had become over restrictive with Federal Reserve interest rates.

In that post, Cogport proposed an immediate reduction in Fed Market Rates by at least 0.5% at the September 2024 meeting, or sooner.

What followed:

·  September 18, 2024: The Fed cut the rate by 0.25%, from 5.00–5.25% to 4.75–5.00%

·  November 7, 2024: Another 0.25 % cut brought the rate to 4.50–4.75%

·  December 18, 2024: A third 0.25% cut lowered it further to 4.25–4.50%

That was a total Reduction of  0.75%.    Too little, given the continued decline in Inflation Rates.

Here we are almost a year later with Fed Reserve policy under Jerome Powell still Over Restrictive.

This Chart demonstrates the Point:

Explanation:

The current run rate of inflation is 2.7% in 2025.

The current Fed Reserve rate is 4.25%

That is the Definition of Over Restrictive.

What are the effects of Over Restrictive Rates:

·         High Cost of borrowing for consumer credit, cars, and housing.

·         Restricted business investment due to high capital cost

·         Reduces GDP

·         Reduces Job Growth

·         High Cost of Federal Interest Payments on the National Debt

In fiscal year 2024 (October 1, 2023 – September 30, 2024), the U.S. government paid approximately $1.1265 trillion in interest on the National Debt.  That was over 18% of the Total Federal Spending of $ 6.8 trillion (24% of GDP). 

An unsustainable amount of Federal Spending taken from the Economy.

A one percent rate reduction in Federal borrowing cost would reduce Federal Spending by $360 Billion.

Everything about the current situation is bad.

Trump has rattled his Sword about removing Powell from office.  Powell is not going to leave over that.

Today Trump said he would not try to remove Powell.  The legal hurdles to remove the Fed Chairman are too high.

So now it is a Mexican Standoff between Trump and Powell.

Why does Powell not support Rate Cuts:

He believes Trump’s tariff proposals will lead to higher costs and inflation.  This is an old paradigm.  Remember, Powell is an attorney, not a PHD in Economics like every other Fed Chairman. 

He lacks vision in the current situation.

His stand flies in the face of these observations:

• Inflation has decreased in 2025 with no meaningful effect from tariffs.

• Countries and Companies will deal with tariffs by a combination of absorbing the cost and increasing prices. 

• So far, there is limited price pressure.

• Competitive pressures will restrict price increases.

It is not automatic that tariffs all get passed through to consumer cost.

What Happens Now ?

The most recent in-person meeting between Donald Trump and Federal Reserve Chair Jerome Powell took place on May 29, 2025, at the White House.

During that session, Trump criticized Powell for not lowering interest rates, suggesting that U.S. policy was falling behind other countries, while Powell reaffirmed that rate decisions would remain data-driven and apolitical.

Cogport suggests that Trump have another meeting with Powell to break the ice.

This meeting should include Secretary of the Treasury Scott Bessent, and explain the tariff data which concerns Powell so much.

If Powell remains obstinate, then we can only hope that other members of the Federal Board can have some influence.  It is not common practice for Board members to buck the Chairman.  So, what are they good for ?

Summary:

All of this suggests a breakdown in the independent Federal Reserve System.

Cogport supports an independent Federal Reserve System.

The function should remain separate from Political Influence.

However, we have learned that Reforms are needed.

Cogport.com  will propose improvements in the Next Report.

David Hollaender                                   July 16, 2025

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