Transcription
President Trump wants the Federal Reserve to cut interest rates right now. So here's what President Trump posted on Truth Social on Friday, April 4th: "This would be a perfect time for Fed Chairman Jerome Powell to cut interest rates."
Trump goes on to justify his recommendation by saying that energy prices are down, interest rates are down, inflation is down, eggs are down, and jobs are up. But he also forgot to mention that the stock market is down as well. Now I want to show you this video clip. This is Jerome Powell, chair of the Federal Reserve, saying that he is in no rush to cut interest rates. He said this at a conference in Virginia on April 4th—the same day that Trump posted this on Truth Social. So please take a look.
"I I will say though you know it feels like we don't need to be in a hurry. It feels like we have time to. Yes, yes. It feels like we don't. No, I mean it's like I said, you have you have um inflation is going to be moving up and and growth is going to be slowing, but it isn't really, it's it to me it's it's not clear at this time what the appropriate path for monetary policy will be, and we're going to need to wait and see how this plays out before we can uh start to make those adjustments." Okay, so you just saw that for yourself.
To summarize what Powell said: his expectations are that inflation is going to increase, that growth is going to slow down, and there's just too much uncertainty. So he doesn't want to rush to make a decision for cutting interest rates. Now I want to show you what Powell says, or his take on tariffs. Please take a look.
"We have stressed that it will be very difficult to assess the likely economic effects of higher tariffs until there is greater certainty about the details, such as what will be tariffed, at what level, and for what duration, and the extent of any retaliation from our trading partners. While uncertainty remains elevated, it is now becoming clear that tariff increases will be significantly larger than expected, and the same is likely to be true of the economic effects, which will include higher inflation and slower growth. The size and duration of these effects remains uncertain. While tariffs are highly likely to generate at least a temporary rise in inflation, it's also possible that the effects could be more persistent."
Okay, so Powell said that tariffs are likely to generate at least a temporary rise in inflation, and it's possible that it's more persistent than just temporary. Now I want to show you this: the Federal Reserve is trying to get inflation down to 2%. This is CPI inflation over the past 20 years. Inflation has been sticky and it's been challenging to get it to targets. Some people will say that the Federal Reserve prefers to use PCE inflation, so not CPI, and I'll say that you're absolutely right. So here is PCE inflation, and the Federal Reserve, they actually prefer core PCE inflation, which is the dark blue line. Please take a look at that.
Okay, so Jerome Powell clearly does not want to cut interest rates right now; at least he's not in a hurry to. But then Trump is saying that Powell should stop playing politics and he should cut interest rates right now.
Okay, so Powell was asked about Trump's comments, and Powell said that he's not going to respond to any comments from elected officials. He says that he's going to focus on the Federal Reserve's dual mandate, which is to keep prices stable and maximum employment.
Now I want to bring this to your attention. This is very important because the Federal Reserve has a dual mandate. A reporter asks Powell: "In the situation where you have a weakening labor market and inflation is still running hot—you know, you have both situations—then what are you going to tackle first? How are you going to prioritize the situation? Basically, what's your game plan?"
So I'm going to show you how Powell responds, but this is very important because there is a chance that we're going to walk into a stagflationary environment, which is the economy and the labor market weakens and inflation is still running hot.
"One of the questions from the audience that we had is if unemployment takes off and inflation takes off, which lever do you go for? Which lever do you what what do you do? So we we actually have a you know we have a a document called our consensus statement, or the longer version is statement on longer run goals in monetary policy strategy, and the sixth paragraph of that actually contemplates when the two goals are intention and what what it says is think about how far each each variable is from its goal and think about how long it would take for each to get back. So in a way it's a it's an equation. You're comparing two quantities which each have two variables, and then you say you you look at that and you think what what do we need to do and you know typically one doesn't this doesn't happen very often, but if one of them is further away then you would you would focus on that one."
Now I want to show you this: Jerome Powell, chair of the Federal Reserve, does not want to give a projection; he doesn't want to give a forecast about a potential recession. All he says is that his belief is that right now the economy is solid and that it's going to weaken. But even though he expects it to weaken, that doesn't necessarily mean a recession—again, these are his words—and that uncertainty is very high. So that's all he says. Please take a look.
"One business owner told me, 'If there's a hint of a recession, we're cooked.' And he asked me to share that with you. What's your response? Um, so I I guess I would say let's start with the fact that the that the incoming data right through this morning's employment report, which admittedly is from roughly a month ago, the week of um of March 12, they took the data and still shows us a solid economy. Unemployment is still low. Um, I understand the uncertainty that's weighing on people. Um uh you ask about a recession um we don't actually uh we don't make a probability forecast of how likely it is for there to be a recession, but many outside forecasters do, and many of them have raised the likelihood albeit from very low levels. It's not it's not uh it's not something that that anybody now is forecasting or some people are starting to um so I can't there's not much more I can say about that. I I realize that the uncertainty is high uh and um you know what we've learned is that the tariffs are are higher than anticipated, higher than almost all forecasters predicted. We're just we we still don't know where that comes to rest though, and we're just going to have to see that through."
All right. Now I want to show you this so that you're in the loop: the next Federal Reserve meeting takes place on May 7th. So according to market expectations—and this is coming from the CME Fed Watch tool—there's a 70.2% chance that the Federal Reserve does not cut interest rates at that meeting.
Now this is very interesting: the market expectations is that at the meeting on June 18th, there is a 94.2% chance that the Federal Reserve will cut rates by that time. And I mean those are some very strong odds. And just to remind you, according to the Federal Reserve's latest projection—so this was on March 19th—the Federal Reserve expects to do two interest rate cuts this year in 2025. So it looks like the market expects that the first interest rate cut is going to happen by that June meeting. So the next time that the Federal Reserve updates their projections is going to be at the June 18th meeting, so that should be a very interesting one in terms of their forecasts after we see how all of these Trump policies are settling in.
So that's the current situation. Please let me know what you think. I'll keep you in the loop. Please subscribe. I thank you for the support and wish you a very nice day. Take care.