Donald Trump has relentlessly attacked the chairman of the Federal Reserve, Jerome Powell. Trump has nicknamed him “Too Late” Powell. Trump’s problem with Powell is that he is taking too long to lower interest rates.
Trump is a low interest rate guy, going back to his days as a businessman. There are reasons that Trump wants lower rates now. It would mean lower rates of interest on U.S. debt, which means the government can spend and borrow more with lower interest costs. Lower rates could also mean the economic boom is greater and longer, at least according to conventional wisdom.
The problem for Powell and the Fed is that we are coming off a period of high price inflation. The numbers have still not returned to the Fed’s target of 2%.
The CPI numbers for July 2025 came out. They were mostly in line or slightly better than expectations. But the year-over-year rate is still coming in at 2.7%.
Since the numbers came in slightly lower than expected, stocks roared higher, hitting new all-time highs. Investors are pricing in a rate cut from the Fed in September.
But why should there be a rate cut if the economy is supposedly booming and the stock market is hitting new highs? Plus, price inflation is still not down to the Fed’s target.
Sabotaging Trump
Some people think that Powell is purposely not lowering rates just to get at Trump. This may or may not be true.
If Powell really wants to sabotage Trump, he should just give him what he wants.
Let’s step into the shoes of Powell. Forget for a moment that there should be no such thing as a central bank that is centrally planning the economy by controlling the money supply and short-term interest rates.
Let’s also pretend that Powell really does want to sabotage Trump and step away leaving him a mess and that he doesn’t really care one way or the other about the economy. If Powell doesn’t quit or somehow get fired, then he will leave his office in May 2026.
Powell should just give Trump what he wants. He should lower the Fed’s target rate. Go 50 basis points at the next meeting and then another 50 at the one after that.
When trouble inevitably arrives, it will be hard for Trump to blame Powell at that point. We may get more of a temporary boom in asset prices, which could delay a recession until after Powell leaves office.
Between the lower rates and the much higher taxes (tariffs) from Trump, it would be likely that price inflation would accelerate again.
Meanwhile, the Fed can maintain its policy of actually deflating the balance sheet while lowering short-term rates (a somewhat contradictory situation).
The deflating money supply and the normalizing yield curve (after being inverted for almost 2 years) should still bring on a recession. But Powell will be exiting while having given Trump his lower interest rates.
Trump is going to have an economic disaster on his hands regardless of what Powell does, but at least Trump won’t be able to as easily blame Powell if he aggressively lowers the Fed’s target rate.
No Sympathy for Powell or Trump
This was just an exercise in what Powell could do to get back at Trump. But don’t feel sorry for Jerome Powell. He shares a lot of fault for the massive price inflation we saw in 2022. He helped Congress run the trillion-dollar deficits in 2020 and 2021. He kept rates low and kept inflating the money supply right up to the point when price inflation spiked higher.
But Powell is just a regular establishment guy. He is not much different from other members of the Fed. He tries not to rock the boat, but Trump has rocked his boat.
Trump deserves what is coming to him. Unfortunately, the American people do not deserve it. Trump is completely unhinged at this point, especially with him using tariffs as a means to dictate foreign policy and punishment for anything he doesn’t like from a foreign government. The problem is that it actually punishes American businesses and consumers.
Imagine if price inflation spikes higher while we also have a massive recession and a crash in stocks. Will Trump just double down and give us even higher tariffs, effectively sanctioning the whole world and ourselves? Will Trump push through even higher spending? Will we get $5 trillion annual deficits?
It sounds absurd, but the things Trump is doing these days are absurd. He has completely squandered the work of DOGE while giving Americans one of the biggest tax increases of all time with his crazy tariffs. He is bragging about the increased “revenue”, which is nothing more than tax collections. Meanwhile, the national debt continues to grow at a staggering pace, even with the higher taxes.
Actually, forget the plan laid out above for Powell. If I were Powell, I would hand in my resignation tomorrow morning.