The Fed held rates steady this week, but the messaging was anything but neutral. While Chair Jerome Powell pointed to supply-side inflation—driven in part by President Trump’s escalating tariffs—Trump immediately turned the heat back on the Fed, demanding rate cuts “as tariffs start to transition into the economy.” The clash underscores a growing disconnect between monetary policy and fiscal direction, with Trump pursuing economic nationalism while the Fed tries to preserve price stability.
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Behind the scenes, Powell’s comments hinted at a more serious risk: stagflation. “Weaker growth, higher inflation,” is how Powell summarized the evolving outlook, a warning that rising prices paired with slowing output could undermine the Fed’s dual mandate of max employment/low inflation. Though he refrained from direct confrontation, Powell’s remarks painted a sobering picture—where trade wars could stoke inflationary pressures without delivering real economic gains. The Fed is caught in a trap: cut rates, and you fuel more inflation; hike them, and you crush fragile growth. It’s a policy corner with no clean exit. However, the likely scenario is tariffs, and fear of their impact, will destroy demand, weakening economic output which lowers inflation, enabling rate cuts.

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