Federal Reserve Governors Disagree on Rate Cuts Amidst Presidential Pressure
Two of the Federal Reserve’s seven Governors, Christopher Waller and Michelle Bowman, publicly stated their belief that tariffs would have only a temporary impact on prices and that the labor market was likely to weaken. This stance led them to dissent at the Fed’s recent meeting, advocating for smaller interest rate reductions than President Trump had called for.
Despite appointing both Waller and Bowman,President Trump,who has characterized the American economy as booming,nonetheless praised their arguments. The latest employment report, released Friday, indicated a significant economic slowdown, with only 73,000 jobs created in july.Furthermore, revisions to previous months’ data lowered job creation figures for May and June by 19,000 and 14,000, respectively.
President Trump has argued that lowering interest rates would stimulate economic growth and reduce borrowing costs for both the federal government and homebuyers. He has also asserted that inflation is negligible, even though the Fed’s preferred inflation measure stands at 2.6%, slightly above its 2% target.
Trump had previously called for a substantial 3 percentage point reduction in the Fed’s key interest rate, a significant decrease from the current average of 4.33%. Such a drastic cut carries the risk of injecting more capital into the economy than it can absorb, possibly accelerating inflation.
Legal precedent from a Supreme Court ruling in May suggests that President Trump cannot remove Fed Chair Jerome Powell solely based on policy disagreements. This has prompted the White House to explore alternative justifications for Powell’s dismissal, such as cost overruns on renovation projects totaling $2.5 billion.
Jerome Powell’s term as Fed Chair is set to conclude in May 2026. At that time, President Trump would have the opportunity to nominate his own candidate, subject to Senate confirmation.
