US Fed’s reality check for Trump administration over tariffs

The US Federal Reserve Chairman’s statement after the second meeting of the Federal Open Market Committee (FOMC) in 2025 has put him on a warpath with the Trump administration.

The US central bank kept interest rates unchanged for a second consecutive sitting at 4.25-4.50% citing “increased uncertainty around the economic outlook”. The 12-member FOMC, however, maintained its projection to trim benchmark rates by 50 bps this calendar year.

The decision to hold rates flew in the face of US President Donald Trump who had the same day called for a cut in interest rates.

In a post on his social media platform Truth Social, he said, “The Fed would be MUCH better off CUTTING RATES as U.S. Tariffs start to transition their way into the economy. Do the right thing. April 2nd is Liberation Day in America!!!”

Jerome Powell, who was appointed the Federal Reserve chair in 2018 by Donald Trump during his first term as the US President, made it clear in his statement that the central bank was in no hurry to cut rates. Powell said, “I think we're well positioned to wait for further clarity and not in any hurry.”

The 72-year-old central banker has also shattered Trump administration’s claims that its tariff shockers against its largest trading partners – China, Canada and Mexico, its tariff barriers against steel and aluminium and its proposed reciprocal tariffs set to kick in on April 2 will not hurt the American consumer.

The claim had been buttressed by none other than US Commerce Secretary Howard Lutnick in an exclusive conversation at the India Today Conclave on March 7.

Questioned by Business Today Executive Director Rahul Kanwal about how concerned the US government was about a survey predicting consumer price inflation resulting from higher tariffs, Lutnick had rubbished the findings, even taking a jab at India.

“There is no inflation”, Lutnick had said, adding, “As you know, India has amongst the highest tariff rates in the world. And because you have such high tariffs, do you have inflation? Of course not.” He argued that inflation came from running deficits and printing money, not from high tariffs.

The US Federal Reserve Chairman disagrees.

“Inflation has started to move up now, we think partly in response to tariffs”, was the big statement Powell made, saying this will delay further cut in interest rates.

Powell said goods inflation had moved up “pretty significantly” in January and February. “A good part of it is coming from tariffs”, he added. According to the US Fed, a part of the price rise was because of people buying ahead of tariffs as well as manufacturers raising prices ahead of tariffs. “Manufacturers just kind of followed the crowd and raised prices. So things happened very indirectly. But ultimately, though, it's too soon to be seeing significant effects in economic data”, Powell said.

The discord in Washington, DC comes even as several economists have warned of recession in the US. This has prompted Donald Trump to seek quicker rate cuts – a step Jerome Powell is loathe to take given the spectre of rising prices due to higher tariffs.