Washington
Cnn
–
President Donald Trump’s radical economic program puts the federal reserve in a difficult situation that she has not faced for decades. The subject is at the center of the Central Bank officials because they meet for their two -day political meeting this week.
Trump plunged the United States into an erratic trade war that threatens higher inflation and an increase in unemployment. The Fed may now have to choose between saving jobs or fighting inflation. If this reduces rates to protect yourself against an economic slowdown in Trump prices, this could potentially increase inflation. However, if this increases rates to discourage a potential increase in inflation of the Trump trade program, this could trigger an increase in unemployment.
However, the most likely scenario is that the Fed will announce Wednesday that it maintains its stable reference loan rate at a range of 4.25% to 4.5%, extending a break that started in January.
“The Fed is taken in this waiting approach, and the next series of data should swing them in one way or another, whether to reduce the rates and support the economy or remain on hold to keep additional inflation,” Dominic Pappalardo, multi-network strategist of Morningstar told CNN.
“Once we arrive in early June, economic data should give a much more important overview of the impact of prices,” he said.
For his part, Trump accused the Fed of being behind the curve, increasing pressure on the central bank in recent weeks to reduce loan costs and attack President Jerome Powell.
Trump’s prices could lead to a “stagflation”, a toxic combination of stagnant growth and increasing inflation that tormented Fed in the 1970s and the early 1980s.
Economists – and Powell himself – hosted this possibility in recent remarks, the Fed chair saying in a speech of April 16 that “we can find ourselves in the difficult scenario in which our double -compressed objectives are in tension”.
But the way in which Fed officials finally react to the fallout from Trump prices will depend on many factors and nuances, including whether an increase in inflation is temporary or not.
“I am ready to examine the effects of pricing,” said Fed governor Christopher Waller, Bloomberg last month. “I will not react excessively to an increase in inflation which, I think, is attributable to the prices.”
However, if unemployment decreases considerably, Waller said it “is important that we intervene”.
So far, the American labor market remains in good shape: in April, employers have added 177,000 stronger than expected jobs and the unemployment rate held at a low 4.2%. But some economists doubt that resilience will persist, employers feeling paralyzed by Trump’s confusing rate.
Trump’s trade war has already weighed on economic growth: gross domestic product, which captures all goods and services produced in the economy, contracted at an annualized rate of 0.3% at the start of the year on an increase in imports while the Americans rushed to beat Trump’s prices, the first quarterly decrease since 2022.
However, Fed officials said that in recent speeches, they need additional economic data to guide their decisions to come to swirling uncertainty.
“For me, it’s a good time for us to take our time and make sure we are going in the right direction,” said Cleveland Fed, Beth Hammack, in CNBC during an interview on April 24.
“You have seen that it is not a Fed who is afraid of moving quickly if we have to move quickly,” she said. In 2022, when inflation operated at 40, the Fed hiked aggressively up to three quarters of a point during certain meetings.
While the Fed faces what could become a complicated economic puzzle, the long -standing independence of the Central Bank has also been threatened.
Trump is a vocal critic of the Fed, generally slamming the central bank so as not to reduce loan costs each time he deems it good. Her Fed criticism dates back to her first mandate and she is also generally coupled with blows to Powell.
On several occasions in recent weeks, Trump has torn Powell, calling him “major loser” and accusing him of not reducing borrowing costs for political reasons. During an Oval Office event on April 17, Trump said: “If I want it, it will be released from there very quickly, believe me.”
But after this public tirade against Powell, senior administration officials warned Trump of Chaos who could take place in the financial markets if he continued to fire the Fed chief. Since then, Trump has softened his tone on Powell, saying that he will not try to dismiss him. In an NBC interview which was broadcast on Sunday, he reiterated this position, adding that he “can change it very quickly anyway”. The term Powell ended in May 2026.
Powell said the law did not give Trump the power to withdraw an official from the Fed, including himself, without point to a justifiable cause.
He must answer journalists’ questions at a press conference at 2:30 p.m. he.
