Recently, the Fed meeting was held. The official rates were left unchanged in the 4.25%–4.50% range, but this was widely expected. Chairman Powell had largely anticipated this outcome. This marks the fourth consecutive meeting without changes. Meanwhile, the European Central Bank has continued to cut rates.
Powell highlighted that inflation remains elevated compared to the 2% target and that the new tariffs imposed by the Trump administration could lead to further price increases in the coming months.
Essentially, Powell’s thesis is as follows: Looking at the latest economic data, the current level of rates is slightly restrictive. In fact, the current level of inflation (2.4% year-on-year) could justify lower rates. However, since everyone expects inflation to rise in the coming months due to the introduction of tariffs, it is better to keep rates unchanged for now. This is also possible because the economy is not showing any particular signs of weakness.
The impact of tariffs on inflation is a debated topic. The Trump administration claims that the cost falls on exporting countries. In reality, it is distributed throughout the chain, from exporter to importer, distributor, and retailers. Part of this additional burden also results in higher prices for the final consumer.
However, we know very little about how an increase in tariffs is reflected in final prices. It depends on the competitive structure of the market, the presence of substitute products, the structure of supply chains, and possible retaliation by other countries. Powell reiterated that the Fed is “well positioned to wait” before acting on rates, adopting a cautious approach while awaiting greater clarity on the impact of tariffs, geopolitical tensions, and fiscal policies.
President Trump disagrees, and yesterday called Powell a “stupid” person, blaming him for stubbornly refusing to lower rates, which he claims is costing the country dearly. Trump’s criticism refers to the fact that the United States must refinance an extremely high public debt at a higher cost than it could be, and this also represents a cost for citizens.
There is no precedent for this kind of tone between the two institutional roles. During the press conference, Powell was extremely correct and avoided responding directly to the president’s public criticism and pressure, reaffirming the Fed’s commitment to price stability and maximum employment, regardless of political dynamics.
It is very likely that criticism of Powell’s actions by the administration will intensify. Trump does not seem inclined to pursue Powell’s early removal, which could prove very complicated. Instead, he appears intent on choosing the new Fed chair, who will take office next May. This new chair could already begin to express opinions and shape expectations. In the event of excessive communication chaos, this could harm the Fed’s credibility.
The fact that rates have been left unchanged is, in any case, good news for our Savings portfolios, which are those most directly affected by monetary policy decisions. The yield to maturity remains at 4%, which is an extremely attractive rate for parking dollar liquidity.
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