It seems the Trump administration wants to cut interest rates to lower prices, as a short term solution. But it can happen that in doing so inflation in the USA will start to increase over the long run.
So the FED is not eager to follow the wishes of the Trump administration. The low interest rates will make the Trump administration popular by the USA public, is the expected idea.
Jerome Powell said he believed the investigation was due to Donald Trump’s anger over the Fed’s refusal to cut interest rates.
www.bbc.comSmall excerpt from text :
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Former Fed chair Janet Yellen, who served for a year during Trump’s first term before she was replaced by Powell, said the probe was “extremely chilling” and warned that “the market should be concerned”.
“Knowing Powell as well as I do, the odds that he would have lied are zero so I do believe they’re going after him because they want his seat and want him gone,” Yellen told CNBC.
“You have a president that says the Fed should be cutting rates to lower rate payments on the federal debt… It is the road to banana republic.“
She added that the probe “shows the lengths to which the President is willing to go to have his way”.
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Washington —
After cutting interest rates three times in a row last year, the Federal Reserve indicated last month it probably won’t lower interest rates again for a while. A months-long pause, cemented by key economic data released Friday, may indeed be the best-case scenario for the world’s largest economy.
The December jobs report showed that hiring in 2025 slowed to levels not seen since the pandemic. But the monthly total came in close to economists’ expectations and the unemployment rate ticked down. That was enough to convince investors with near certainty that the Fed would hold rates steady at its January 27-28 meeting, according to futures. Wall Street now doesn’t expect a rate cut until June.
High interest rates exacerbate affordability issues for many Americans, but high unemployment can cut deeper. Central bankers are tasked with managing this balance, and lowering rates at this point would be an acknowledgement that the labor market has significantly deteriorated.
“The Fed will likely hold course for now with the labor market showing tentative signs of stabilizing,” wrote Lindsay Rosner, head of multi sector fixed income investing at Goldman Sachs Asset Management, in an analyst note Friday.
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Throughout 2025, employers added jobs at a weak pace, with only a few industries driving job growth as the unemployment rate gradually moved higher. It has put Fed officials in a conundrum, with both sides of their dual mandate of stable prices and maximum employment under stress — and it has divided the Fed’s powerful rate-setting committee.
Economists also expect President Donald Trump’s patchwork of tariffs to fully filter through to consumer inflation this year, likely resulting in a one-time increase to prices. The tariff situation, however, remains uncertain: The Supreme Court this year is expected to determine whether a big chunk of Trump’s tariffs are lawful.
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