Quick overview

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The U.S. Federal Reserve recently decided to keep interest rates steady within the 4.25%–4.5% range, amid persistent uncertainty about inflation dynamics in the context of the ongoing trade war.

On Monday, President Donald Trump renewed his criticism of the Federal Reserve, stating that interest rates should be at or below 1%. His remarks come as rumors circulate about a possible replacement of Fed Chair Jerome Powell.

Trump argued that Powell and the members of the Fed’s Board of Governors have failed in their responsibilities. “If they were doing their job properly, our country would be saving trillions of dollars in interest costs,” he posted on Truth Social. “We should be paying 1% interest—or better!” he added.

In its latest policy meeting, the Fed justified holding rates steady due to the lingering risk of inflation tied to the tariff war initiated by Trump. Previously, the central bank had raised rates throughout 2022 and 2023 in an effort to cool the economy and tame inflation, which had surged to a four-decade high amid the Russia-Ukraine conflict.

Now that inflation is approaching the Fed’s 2% target, Trump has ramped up his attacks on the institution, calling Powell “a fool” and “an idiot.”

However, Powell testified before Congress earlier this week, reiterating that the Fed wants to wait for clearer signs in inflation and economic data before making any move to cut rates. Most Fed policymakers have echoed this cautious stance.

Markets React to Fed Speculation

In recent sessions, speculation about Powell’s possible replacement has helped boost Wall Street, as investors bet on a more dovish pivot.

Meanwhile, the Fed continues to closely monitor inflation and employment indicators. Last week, the U.S. Department of Commerce reported that prices rose 2.3% in May compared to a year earlier, up from 2.1% in April. Core inflation, which excludes food and energy, increased 2.7% year-over-year, slightly above the Fed’s 2% target and the 2.6% pace recorded the previous month.

On the labor front, initial jobless claims fell by 10,000 to a seasonally adjusted 236,000 in the week ending June 21, below economists’ expectations of 245,000. However, layoffs have been on the rise, and economists note that Trump’s broad import tariffs are making it harder for businesses to plan ahead.

Continuing claims remain elevated, leading analysts to project that the unemployment rate could rise to 4.3% in June from 4.2% in May.