President Donald Trump today unleashed a barrage of criticism aimed at Federal Reserve Chair Jerome Powell, urging for immediate interest rate cuts and expressing frustration with Powell’s performance, declaring that “Powell’s termination cannot come fast enough.”
This statement comes as the Trump administration’s ongoing tariffs create significant global uncertainty and economic repercussions, exemplified by the Dow Jones industrial average plummeting over 500 points in a recent sell-off.
While tech stocks demonstrated a slight resilience, the Nasdaq’s losses were marginal, and the S&P 500 also showed minimal gains amid the volatility.
In a parallel move, the European Central Bank decided to cut its key interest rate by a quarter-point, citing what its president described as “exceptional uncertainty.” Adding to the economic woes, the International Monetary Fund issued a warning, forecasting slower global economic growth for the year along with higher inflation than earlier predictions.
For further insights on these unfolding economic developments, Amna Nawaz spoke with Austan Goolsbee, president and CEO of the Federal Reserve Bank of Chicago.
“Thank you for having me, Amna,” Goolsbee began, as the discussion turned immediately to the ongoing tensions between Trump and Chair Powell.
Reflecting on the president’s vehement criticisms, including Trump’s assertion that Powell is slow and ineffective in his role, Goolsbee stated, “One of the oldest rules in the book is don’t ask legal advice from a guy with an econ Ph.D. So I don’t know the answer to any of that.”
However, he emphasized the critical importance of monetary independence, pointing out that the Fed is legally obligated to focus on maximizing employment and stabilizing prices.
“That’s the thing that guides what the Fed’s decisions are going to be; it has to be based on economic conditions.”
Goolsbee elaborated on the precarious situation the economy is facing, noting that entering the year, the hard data showed significant strength, but now there are increasing uncertainties driven by tariffs.
He elaborated, “There’s a lot of anxiety that we’re turning the page back potentially to something resembling 2021 and 2022, where inflation was out of control, higher than where we wanted it.”
Businesses, he noted, are very concerned about returning to those conditions, with many expressing they do not want to experience that troubling economic landscape again.
With the specter of high inflation looming large, Goolsbee remains hopeful that the solid economic conditions evident in hard data can persist, aiding in the return of inflation to the two percent target while maintaining robust growth and full employment.
He continued, focusing on the historic challenges facing the Federal Reserve Board, “The rules forbid me to speak for anyone else on the FOMC besides myself. However, I have been citing feedback from business leaders across various sectors that if tariffs rise too substantially, it can pivot the economy towards deteriorating both sides of the Fed’s mandate—leading to slowing growth and worsening employment while prices increase.”
Goolsbee warned that this scenario creates a difficult situation, as there is no straightforward playbook concerning the Federal Reserve’s actions amidst a stagflationary pressure that negatively impacts both growth and employment.
Reflecting on the current economic landscape, he affirmed, “I have been an advocate for some time that we appear to be at full employment, with inflation trending back to our two percent goal.”
Goolsbee articulated that in this context, it could make sense for interest rates to decrease over the next 12 to 18 months, depending on underlying economic conditions. However, he cautioned, “The conundrum is, would the Fed have the capacity to cut rates if inflation starts to climb significantly again? That’s the concern that’s being relayed by business stakeholders.”
He then referenced the situation in Europe, advising caution as their economic decisions are influenced heavily by local conditions. With many European countries possibly already in recession, Goolsbee warned against using Europe as a sole indicator for U.S. economic policy directions.
Moving closer to the ground-level sentiment, Goolsbee reiterated, “When speaking with businesspeople, there’s a palpable sense of uncertainty and hesitation to advance plans until this situation resolves itself.”
Major corporations are framing their earnings guidance within varying scenarios, indicating that uncertainties surrounding tariffs compel them to prepare for different outcomes based on tariff levels changing.
Thus, Goolsbee concluded that it remains essential to clear the economic fog before establishing a defined path forward.
As concerns about a potential recession grow, numerous private sector forecasters have raised alarm bells about its increasing probability.
The extent to which tariffs will elevate costs, the retaliatory measures from other nations, and their resultant economic effects remain unclear.
As he expressed, “There’s just so much that we need to keep an eye on, and hopefully, we can navigate back to that solid hard data we were encountering at the start of this period.”
In the coming months, the intersection of U.S. and global economic policies, tariffs, and the responses of central banks might set the stage for an economic landscape where growth, inflation, and employment intersect with unprecedented uncertainty.
image source from：https://www.pbs.org/newshour/show/chicago-fed-president-on-trumps-trade-war-and-threats-to-fire-powell
