Powell Resists Trump’s Call For Rate Cuts Amid Inflation Woes

The relationship between political leaders and financial institutions is going through a phase of great tension. Donald Trump, the President of the United States, has vehemently attacked the Federal Reserve (Fed) and demands an immediate reduction in interest rates. This call, made during the World Economic Forum in Davos, comes as the Fed, led by Jerome Powell, maintains a cautious approach in the face of persistent inflation and a strong labor market. Such a standoff highlights critical issues for the American economy, raising the question of the independence of central banks on a global scale.

A Thunderous Call for Immediate Action

Donald Trump, known for his repeated criticisms of American monetary policy, has once again expressed his dissatisfaction with the Federal Reserve (Fed). During a video conference address at the World Economic Forum in Davos on January 23, 2025, he urged the institution to urgently reduce interest rates. According to his statements, “with oil prices set to drop, I demand that interest rates be lowered immediately and, likewise, they should decrease everywhere around the world.” This new public call reflects an escalation in his confrontation with the Fed, which he accuses of stifling economic growth by maintaining high rates.

This statement comes as the Fed, led by Jerome Powell, plans to keep its benchmark rates between 4.25 % and 4.50 %. This strategy is based on two priorities: containing rising inflation, which regained strength at the end of 2024, and preserving the strength of the labor market. Trump, however, does not hide his hostility towards Powell, whom he accuses of acting, in his view, “in service of the Democrats.” By rejecting the Fed’s approach, he has declared: “I know interest rates much better than they understand them.” These criticisms highlight the political stakes surrounding this debate, as the question of central bank independence remains at the heart of concerns.

A Divergence with Europe and Uncertain Prospects

As Donald Trump intensifies public pressure on the Federal Reserve (Fed), the European Central Bank (ECB) adopts a completely different strategy. In Europe, the ECB is favoring a gradual approach that aims to bring its benchmark rates back to a neutral level of 2 %, a threshold considered conducive to a balanced economic recovery. François Villeroy de Galhau, governor of the Bank of France, stated on this subject: “if the decline in inflation is confirmed, we could reach a neutral rate by next summer.” This policy aims to provide stable financing to support key sectors such as real estate, which is beginning to show signs of recovery.

This contrast illustrates the deep divergences between the economic dynamics of the two continents. In Europe, inflation, which had reached a record high of 10.6 % in October 2022 due to soaring energy prices, now seems to be under control. However, in the United States, the Fed maintains a cautious posture to avoid any easing in the face of still threatening inflation and a resilient labor market. Moreover, this disparity fuels uncertainties in global financial markets. A hasty reduction of American rates, driven by political pressures, could lead to a weakening of the dollar, disrupting international investment flows and escalating economic tensions between major powers.

This confrontation between Donald Trump and the Federal Reserve reveals a fundamental issue: the balance between politics and the independence of central banks. While the ECB pursues a measured strategy to stabilize the European economy, the pressures exerted on the Fed raise concerns about global economic governance. The decisions made by these institutions in the coming months will influence the prospects for financial stability, but also the power dynamics between major economic powers. This standoff, far from being trivial, could permanently redefine the relationships between monetary policies and political ambitions.