The Fed resists Trump and maintains the rates despite the tensions

The showdown between Donald Trump and the federal reserve intensifies. The president accuses the institution of sabotaging the economic recovery by refusing to lower rates quickly. Approaching a decisive meeting and against the backdrop of increasing trade tensions, the Fed is under the fire of criticism. In an increasingly politicized climate, the independence of the central bank is put to the test, while the markets scan its smallest signals at a time when the economic trajectory of the United States remains uncertain.

The Fed remains firm despite mixed economic signals

While tensions between Trump and Powell are increasingly increasing, this Wednesday, July 30, the American federal reserve confirmed the maintenance of its key rate in the range of 4.25 % to 4.5 %, extending for the fifth consecutive time its posture of monetary break.

This decision was justified by an economic environment deemed still uncertain. “The economy is in a solid position despite persistent uncertainties”said Jerome Powell, president of the Fed, at his press conference. He also pointed out that “The labor market is generally in balance and consistent with full employment”while recognizing that inflation remains “Raised compared to the long -term objective of 2 %”.

The arguments put forward by the Fed are based on a series of economic observations that the institution deems worrying in the short term:

• Sweat economic growth: if the GDP of the second quarter increased by +3 % in annualized pace, Powell said that, taking into account the contraction of -0.5 % in the first quarter, the cumulative growth of the first half is barely +1.2 %;

• Inflation always above the target: despite a decline since the peaks of 2022, inflation remains above the 2 % set by the Fed as a objective;

• The uncertain effects of customs tariffs: the impact of new customs duties begins to be felt in certain consumer prices, but Powell still judges premature to draw final conclusions;

• Tensions within the FOMC: two governors, Michelle Bowman and Christopher Waller, expressed their disagreement, voting for a drop of 25 base points. It is a first since 1993 that such a double dissensus appears within the committee.

The Fed therefore remains vigilant, awaiting two new series of on-chain data on employment and inflation before its next meeting, scheduled for September 16 and 17.

In response, the markets immediately adjusted their expectations. According to CME Fedwatch Tool, The probability of a drop in September fell from 63.3 % to 47.3 %translating a reinforced climate of prudence.

Trump calls for rates “under 1 %” and personally attacks Jerome Powell

Only a few hours after the Fed's decision Donald Trump intensified his criticism. “Jerome Too late Powell has struck again!” He is too late, and in reality, too upset, too stupid and too politicized to occupy the post of president of the Fed ” writing Trump in a message published on Truth Social.

“Rates should already be well below 1 %”said the American president. According to him, the maintenance of current rates harms American growth, which it claims to be solid thanks to its economic reforms.

Trump, who had himself named Powell at the head of the Fed in 2017, now openly criticizes his action, believing that the central bank acts “Against the interest of the American people”. This public campaign puts unique political pressure on a historically independent institution.

However, Trump's criticisms go beyond verbal attacks. Its proximity to certain members of the FOMC, in particular those who voted for a drop in rates, arises on the future of the independence of the Fed.

Jerome Powell responded with firmness: “Having an independent central bank is an institutional arrangement that has served the public well, and as long as that remains the case, it must be respected”.

He added that the Fed makes its decisions “Based on data, risk evolution, not political considerations”. However, behind the scenes, several analysts fear that this growing confrontation mine the credibility of the Fed. Such pressure could “To question the monetary independence of the United States in the long term”.

This showdown between the Fed and Donald Trump could have systemic consequences. A Fed weakened or perceived as politically instrumentalized risks losing market confidence. In a context of still fragile monetary normalization and a hidden trade war, this could accentuate volatility, including on the Crypto market. If the Fed gives in to political injunctions, this could temporarily support risky assets, but would weaken the anchoring of inflation anticipations.