Tension between the White House and the Federal Reserve reached a new high point this week. While President Donald Trump implements an aggressive tariff policy and demands rate cuts to stimulate the economy, the U.S. central bank decided to keep its benchmark rate unchanged and issued a warning about growing risks to inflation and employment.

On Wednesday, members of the Federal Open Market Committee (FOMC) voted unanimously to keep rates in the 4.25% to 4.50% range, a pause that reflects the growing economic uncertainty caused, in part, by the president's own trade policies.

"There is a great deal of uncertainty" about where tariff policies will end up and what their implications will be for the economy, Fed Chairman Jerome Powell said at a press conference. The reference is a direct reference to the tariff offensive launched by Trump in April, which included heavy levies on imports from China and a base tariff of 10% for most other countries, although pauses and partial renegotiations were later introduced.

Inflation and employment: the new dilemmas

Although hard indicators - such as low unemployment and stable inflation - have been positive so far, surveys show a drop in consumer confidence and fears of rising prices. Some economists warn that the rates could translate into stagflation: an unwanted combination of inflation with economic slowdown.

"All the hard data are backward looking," former Fed economist Rodney Ramcharan told AFP on Wednesday. "And all the soft data that they're getting...those data look pretty bad.".

According to Jay Bryson, chief economist at Wells Fargo, the most prudent course of action would be to wait for more clarity on the future of international trade. JPMorgan, meanwhile, projects that the Fed could cut rates in September if labor indicators begin to weaken.

Trump versus Powell

The Fed's decision soon provoked an angry reaction from President Trump, who on Thursday called Jerome Powell a "fool" from his Truth Social network. "“Too Late” Jerome Powell is a FOOL, who doesn’t have a clue. Other than that, I like him very much! Oil and Energy way down, almost all costs (groceries and “eggs”) down, virtually NO INFLATION, Tariff Money Pouring Into the U.S. — THE EXACT OPPOSITE OF “TOO LATE!” ENJOY!," the president wrote, accusing the central bank president of not acting with the urgency that the situation requires.

Trump argues that there is no evidence of significant inflation and that "almost all costs" have come down. However, that view contrasts with the Fed's concerns about the inflationary impact of tariffs, an issue that calls into question the central bank's independence.

This is not the first time Trump has launched personal attacks against Powell. In April, he had called him a "big loser" and, although he later said he does not intend to oust him, he has reiterated his demand for rate cuts.

Facing pressure, Powell responded calmly, "We are always going to consider only the economic data, the outlook, the balance of risks, and that's it."

A pause with policy implications

This new pause in rates is not neutral. It comes against a backdrop in which the US economy continues to grow, but shows signs of vulnerability. At the same time, the political calendar is advancing and Trump's pressure on the Fed seems increasingly strategic, in search of economic stimulus that favors his administration.

For the Fed, the dilemma is to maintain the credibility of its dual mandate: to keep inflation under control and ensure full employment, without giving in to short-term political pressures.

Meanwhile, financial markets celebrated the decision with gains on Wall Street, although caution persists. All eyes are on the summer data and whether the Fed will change course before the end of the year.

With information from AFP