Monetary Policy: Donald Trump Versus Jerome Powell?

President-elect Trump has, in the past, been at odds with Federal Reserve Chair Jerome Powell on monetary policy. Trump will likely favor lower interest rates and an easier monetary policy than Powell. However, Powell and the Fed act independently of the presidency, at least nominally, and when asked if he would step down if Trump asked him to, Powell said no.

Powell has said he’s reluctant to lower interest rates until there’s good evidence that inflation is headed toward the Fed’s 2% inflation goal. Such evidence will be difficult to come by in the next few months. It is unlikely that prices will continue their downward trend over the rest of the year.

Recently released inflation data for October show that consumer prices rose by 2.6% over the past calendar year, which does not look that close to 2% to me. However, prices fell in November and December of 2023. Since the beginning of 2024, prices have risen by 2.9%. Any uptick in prices over the next two months will place the inflation rate for all of 2024 at or above 3%.

Should that occur, it would appear from Powell’s comments that he would be reluctant to lower interest rates early in 2025 at the beginning of Trump’s term. That will put his agenda at odds with Trump’s. I expect some critical comments from Trump to be launched Powell’s way.

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