Trump’s War with the Fed Heats Up

By Jacob Weindling  |  June 18, 2025 | 3:18pm
Photo by The White House
Economy Donald Trump
Trump’s War with the Fed Heats Up

Today is Fedsday, where the Federal Open Market Committee meets to decide whether they will change the Fed Funds Rate. This rate has an enormous impact on interest rates, and President Trump is keenly aware of it. He ranted about Fed Chair Jerome Powell at his little flagpole ceremony today, calling him “a stupid person” while claiming that “I’ve been so nice to” a man he said he wanted to fire two months ago.

Trump is big mad about Jerome Powell for not lowering rates

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— Aaron Rupar (@atrupar.com) June 18, 2025 at 8:03 AM

Trump, ever the real estate man, does understand the basic dynamic behind interest rates, as he said it would make it easier to borrow with lower rates and “we should be two and a half points” under the current Fed Funds Rate. The tension at the base of this is the GOP’s bill that will kill people and also blow out the deficit, and if borrowing costs were cheaper, the dynamic CBO score for it wouldn’t be as bleak (it would still be pretty bleak), and the bond market wouldn’t be threatening to plunge into chaos as a result of its passage.

This is a massive cut that Trump is calling for. To put it in perspective, when the housing market collapsed to spark the Great Recession in September 2007, it took until March 2008 for the Fed to get as far as cutting rates by 2.5 percent. Trump wanted to do that today. There’s a reason monetary policy moves slow, and Trump will never understand that reason because he is the least patient man alive.

And the Fed is likely to not cut at all the rest of this year per their dot plot. Their forecast remained largely unchanged save for a slight downward revision to GDP, so there really isn’t much new news from the Fed here, but Trump’s increased agitation and the risks to inflation and growth that the Fed has talked about all year have become more salient. If Trump can’t get his trade deals done by his self-imposed deadline of July 8th, and those initial market-shattering tariffs go back into effect, inflation will rise and the last thing the Fed wants to do when inflation is rising is to cut interest rates. Know what can also lead to a spike in inflation? Rising oil prices.

If Trump wants to wage war with Iran, he can kiss any near-term rate cuts goodbye. Since Israel attacked Iran, the price of Brent crude oil is up over fifteen percent, and oil prices have been low recently. There is plenty of room for them to keep rising, as their high in 2022 after the Russian invasion of Ukraine is still about 60 percent away. By going to war with Iran, he would take any ability out of the Fed’s hands to lower interest rates, because ultimately, the Fed doesn’t set interest rates, the bond market does.

The Fed simply reacts to the conditions in the markets and (theoretically) tries to create a policy that will help stabilize them in the future. Trump’s trade war and potential war with Iran are destabilizing markets, as the Fed stated today. Trump could go into the Fed himself right now and shift the Fed Funds Rate down 2.5 percent and it wouldn’t do anything to change reality out in the real world. In fact, it would likely exacerbate the turmoil in the bond market, as this exact thing Trump wants to do is what policymakers did in the 1970s that helped yo-yo inflation back and forth, leading to an extended period of stagflation that may look mild in comparison to Trump’s stagflationary policies when it’s all said and done.

Trump is waging war on American cities, the bond market, the Fed, and potentially Iran all at the same time. His chaotic policies have likely chilled investment as evidenced by last month’s awful ADP jobs report, and the Fed’s expectations for the unemployment rate have risen a bit in this recent survey (bottom right quadrant, gray bars).

The unemployment rate really sticks out.

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— George Pearkes (@peark.es) June 18, 2025 at 12:03 PM

Fed’s Powell: “For the time being we are well positioned to wait to learn more about the likely course of the economy before considering any adjustments to our policy stance.”

— Michael Derby (@michaelsderby.bsky.social) June 18, 2025 at 12:36 PM

Two facts worth considering:
1. The Fed is projecting GDP growth of 1.4% this year
2. Nearly every time growth has slowed to this rate, the economy stalls, and a recession follows

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— Justin Wolfers (@justinwolfers.bsky.social) June 18, 2025 at 12:43 PM

Uncertainty is the buzzword for the economy right now, which is one way to stall economic growth on its own. People don’t invest or spend as much when they are uncertain, and Trump is ratcheting up that uncertainty each and every day. Like previous forecasts, the Fed’s latest one is concerned about higher inflation and lower growth, the core conditions of stagflation. “The effects of tariffs depends on their ultimate level” said Jerome Powell today, effectively telling Trump that if he wants to lower the Fed Funds Rate, there’s one way he could do it. But if he bombs Iran and oil spikes back to 2022 levels, there’s nothing the Fed or Trump could do, as stagflation would likely become de facto official Trump policy at that point.

 
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