by Calculated Risk on 6/30/2025 04:20:00 PM
Today President Trump put out a note urging Fed Chair Powell to lower rates.
The following image, courtesy of Conor Sen, shows the central bank rates around the world. Mr. Trump wrote:
Jerome, You are, as usual, “Too Late”. You have cost the USA a fortune – and continue to do so – you should lower the rate – by a lot! Hundreds of billions of dollars being lost! No Inflation.
Mr. Trump also wrote “Should be here” and referenced rates between 0.25% and 1.75%. The current Fed’s Fund rate is between 4.25% and 4.5%. Fed Chair Powell is probably correct about rates currently being “modestly” restrictive, but it is possible we are neutral now.
It is difficult to predict what will happen over the next year. There is considerable uncertainty about the impact of policy on inflation and the economy in coming months.
Click on graph for larger image.
Goldman Sachs economists noted today:
“We are pulling forward our forecast for the next cut to September. We had previously expected a cut in December because we thought that the peak summer tariff effects on monthly inflation would make it awkward to cut sooner. But the very early evidence suggests that the tariff effects look a bit smaller than we expected, other disinflationary forces have been stronger, and we suspect that the Fed leadership shares our view that tariffs will only have a one-time price level effect. And while the labor market still looks healthy, it has become hard to find a job, and both residual seasonality and immigration policy changes pose near-term downside risk to payrolls.”
Maybe the impact on inflation from the tariffs will be less than expected. And it seems likely the impact will be mostly transitory.
It is also possible the economic weakness from policy (immigration, fiscal) will more than offset any boost to inflation from the tariffs. Although immigration policy might push up inflation for food, etc. It is very uncertain right now.
It appears that currently Fed Funds policy is reasonably appropriate.
