Donald Trump vs. the Federal Reserve?

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Key Points and Summary: With Donald Trump’s imminent return to office, economic priorities for 2025 remain uncertain, focusing on tax cuts, border security, and the Federal Reserve’s response.

-The Fed, which cut rates in December 2024, is now adopting a cautious approach, concerned about the inflationary effects of Trump’s proposed tariffs and immigration policies.

-Fed minutes reveal that while four rate cuts were initially forecasted for 2025, this has been revised to two, with short-term rates projected at around 4% by year-end.

-Trump has pledged not to remove Fed Chairman Jerome Powell, despite occasional criticisms. How Trump balances his policies and the Fed’s independence will shape the year’s economic outlook.

Trump and the Federal Reserve: How 2025’s Economic Policies Could Shift the Landscape

With Donald Trump less than two weeks away from returning to office, the economic focus for 2025 remains on what exactly Congress will do, whether Trump will prioritize tax cuts or border security and whether this is all done with “one big bill” or multiple smaller ones. 

But there’s also the question of the Fed. 

The Federal Reserve, during the high inflation early years of the Biden presidency, raised interest rates, although the Fed pivoted towards cuts in the last year, with the most recent cut coming in December. Trump may very well owe his 2024 election victory to perceptions about high inflation, although he has not quite articulated a game plan for how to reduce prices. 

Per CNBC, which cited the minutes from the Fed’s December meeting, Federal Reserve officials have “expressed concern about inflation and the impact that President-elect Donald Trump’s policies could have on efforts to reduce it.” Therefore, the Fed will move more slowly in 2025. 

The uncertainty, judging by the Fed’s minutes, comes from Trump’s plans when it comes to new tariffs, as well as deportations. There is also uncertainty, as there often was in Trump’s first term, about whether or not these radical policies will really happen. 

“Almost all participants judged that upside risks to the inflation outlook had increased,” the Fed minutes said, as cited by CNBC. “As reasons for this judgment, participants cited recent stronger-than-expected readings on inflation and the likely effects of potential changes in trade and immigration policy.”

Also, while the Fed had forecasted four rate cuts in 2025 in its September meeting, that forecast has been revised down to two. 

“In discussing the outlook for monetary policy, participants indicated that the Committee was at or near the point at which it would be appropriate to slow the pace of policy easing,” the minutes said. 

“A substantial majority of participants observed that, at the current juncture, with its policy stance still meaningfully restrictive, the Committee was well positioned to take time to assess the evolving outlook for economic activity and inflation, including the economy’s responses to the Committee’s earlier policy actions,” the Fed minutes said.

Per a Forbes report, short-term interest rates are seen as hitting around 4 percent at the end of 2025, compared to 4.25 percent to 4.5 percent range currently. 

Fed Chairman Jerome Powell was appointed by Trump in 2018, during his first term, and with Biden re-appointing him in 2022. 

 Trump said in December that despite some criticisms of Powell over the years, he does not plan to remove him as chairman. Powell had said days after the election that he would not leave the post even if Trump asked him to. 

“No, I don’t think so. I don’t see it,” Trump said in a post-election interview on Meet the Press. “But, I don’t — I think if I told him to, he would. But if I asked him to, he probably wouldn’t. But if I told him to, he would.”

Scott Bessent, who Trump has nominated to serve as Treasury Secretary, reiterated in a December CNBC interview that Powell will complete his term as chairman, even as Bessent has been critical of Powell in the past, including in an op-ed he wrote last spring about rate-cut decisions. 

The Federal Reserve has long been independent, although Trump has said, including during the campaign, that the president should have a say in interest rate decisions. 

Author Expertise and Experience:

Stephen Silver is an award-winning journalist, essayist and film critic, and contributor to the Philadelphia Inquirer, the Jewish Telegraphic Agency, Broad Street Review and Splice Today. The co-founder of the Philadelphia Film Critics Circle, Stephen lives in suburban Philadelphia with his wife and two sons. For over a decade, Stephen has authored thousands of articles that focus on politics, technology, and the economy. Follow him on X (formerly Twitter) at @StephenSilver, and subscribe to his Substack newsletter.