Trump Pushes for Rate Cuts as Powell Holds Steady Amid Rising Inflation Fears — Evening Brief – 04.24.25
President Trump has expressed no intention to dismiss Federal Reserve Chair Jay Powell but continues to push for interest rate cuts, describing the Fed’s reluctance as a mistake. This marks a continuation of Trump’s public criticism of the Fed’s cautious approach, reflecting his belief that lower rates would stimulate economic growth. However, the Fed is widely anticipated to maintain the current federal funds rate range of 4.25%–4.50% at its upcoming May 7 Federal Open Market Committee (FOMC) meeting, signaling no immediate shift in policy.
Trump’s advocacy for rate cuts has yet to significantly alter market sentiment. According to Fed funds futures data from the CME Group’s FedWatch Tool, there is a 94% probability that the Fed will keep rates unchanged in May. Looking further ahead, the market assigns a 59% likelihood of a 25-basis-point rate cut at the June 18 meeting. The bond market also shows signs of anticipating future easing. The U.S. 2-year Treasury yield, at 57 basis points below the 4.33% Fed funds target, reflects expectations of easing.
The Fed’s reluctance to cut rates, however, stems from heightened inflation concerns, driven by recent data indicating rising price pressures. The Atlanta Fed’s Business Inflation Expectations survey for April 2025 reported that firms expect year-ahead inflation to reach 2.8%, the highest since July 2023 and up from 2.4% in December 2024. This marks the fourth consecutive month of increasing expectations. More alarmingly, the University of Michigan’s consumer sentiment survey showed one-year inflation expectations surging to 6.7%, the highest since 1981, far exceeding the Fed’s 2% target.
In contrast, the Treasury market’s 5-year breakeven inflation rate, which measures expected inflation over the next five years, remained relatively stable at 2.33%—roughly unchanged from January. This divergence between consumer sentiment and market-based measures suggests mixed signals about the inflation outlook, complicating the Fed’s decision-making.
Powell has consistently emphasized a data-dependent approach, prioritizing evidence that inflation is under control before considering rate cuts. In a speech last week, he stated, “For the time being, we are well positioned to wait for greater clarity” on policy impacts from immigration, taxation, regulation, and tariffs. Meanwhile, CEOs from Walmart, Target, and Home Depot warned Trump that his proposed tariffs could drive up prices.
Recent data points to a slowing U.S. economy, which could naturally dampen price pressures. The median forecast for Q1 2025 real GDP growth has fallen to 1.2% (annualized), a sharp decline from the 2.5% growth recorded in Q4 2024 by the Bureau of Economic Analysis. Additionally, the S&P Global US Composite PMI for April 2025 registered at 50.9, down from 52.1 in March, indicating a continued slowdown in business activity across manufacturing and services.
The critical question is whether slowing growth will counterbalance tariff-driven inflation. If neither trend prevails, stagflation—slow growth paired with persistent inflation—could lock the Fed and Trump in a prolonged stalemate. Incoming data will soon clarify the balance. But for now, the Fed remains unmoved, and Trump’s calls for cuts have yet to shift market or policy expectations significantly.