Why Trump Can’t Afford to Ditch Powell
In June 2025, U.S. inflation climbed to 2.7%, the highest since February, fueled by President Donald Trump’s sweeping tariffs on imports. From furniture to clothing, prices are rising, and American consumers are feeling the pinch. Meanwhile, Trump’s public feud with Federal Reserve Chair Jerome Powell has intensified, with the president demanding aggressive interest rate cuts to offset the economic fallout. But as inflation accelerates, Powell’s cautious, data-driven approach might be the anchor the economy needs. This blog post dives into the interplay between tariffs, inflation, and the Federal Reserve’s role, exploring why replacing Powell could destabilize the U.S. economy further.
The Tariff-Driven Inflation Surge
Trump’s tariffs, imposed on nearly all imports, have begun to reshape the U.S. economic landscape. The Consumer Price Index (CPI) reported a 2.7% annual increase in June, up from 2.4% in May, with core inflation (excluding food and energy) rising to 2.9%. Specific goods like clothing (up 0.4%), appliances, and toys (up nearly 2%) reflect the direct impact of import taxes. Major retailers like Walmart and Best Buy have warned of price hikes, as importers pass on the tariff burden to consumers.
Economists, including Federal Reserve Chair Jerome Powell, have long cautioned that tariffs act as a tax on imported goods, raising costs for businesses and, ultimately, shoppers. A 2019 study by the Federal Reserve Bank of New York found that Trump’s 2018 tariffs led to a “complete pass-through” of costs to domestic prices, and the current wave of tariffs—some as high as 30% on the EU and 50% on Brazil—could amplify this effect. Goldman Sachs analysts predict that by December 2025, inflation could rise by an additional percentage point if these tariffs persist.
The tariff strategy, while generating $100 billion in revenue this year, according to White House claims, risks a stagflationary shock—rising prices coupled with slowing economic growth. This delicate balance puts the Federal Reserve in a challenging position, as higher inflation typically calls for rate hikes, while economic slowdowns demand cuts.
Trump’s Pressure on Powell
President Trump has repeatedly called for the Federal Reserve to slash interest rates, at times demanding a cut to 1%, a level typically reserved for severe economic downturns. His social media posts, including a July 2025 Truth Social message claiming “LOW” consumer prices, dismiss the rising inflation data. Trump’s frustration stems from Powell’s refusal to lower rates, currently steady at 4.25%-4.5%, as the Fed monitors the economic fallout from tariffs.
Powell has emphasized a “wait-and-see” approach, noting that tariffs could both inflate prices and slow growth, creating a tricky policy dilemma. In a June 2025 testimony before the Senate Banking Committee, Powell stated that inflation forecasts rose “materially” due to Trump’s tariffs, delaying planned rate cuts. This stance has drawn ire from the White House, with Trump labeling Powell “too late” and even floating replacements like Treasury Secretary Scott Bessent.
However, Powell’s caution is grounded in data. The Fed’s target inflation rate is 2%, and with June’s 2.7% CPI exceeding this, premature rate cuts could exacerbate inflation, risking a repeat of the 2022-2023 spike that hit 9%. Trump’s pressure, including threats to oust Powell, has raised concerns about political interference in the Fed’s independence, a cornerstone of U.S. monetary policy.
Why Powell’s Role Is Critical
Jerome Powell’s leadership at the Federal Reserve is pivotal for navigating the economic turbulence caused by tariffs. His data-driven approach contrasts with Trump’s push for immediate rate cuts, which could weaken the dollar and fuel further inflation. The Fed’s independence allows it to prioritize long-term stability over short-term political demands, a principle Powell has defended despite personal attacks from Trump, who has called him a “numbskull” and “fool.”
Powell’s term as Fed Chair expires in May 2026, but his broader governor term extends to 2028. While Trump cannot legally fire Powell over policy disagreements, a recent Supreme Court ruling suggests he could attempt removal “for cause,” such as misconduct. However, ousting Powell risks market panic, as seen in April 2025 when Trump’s criticisms triggered a brief sell-off. Replacing Powell with a loyalist who prioritizes rate cuts could undermine investor confidence and weaken the Fed’s credibility globally.
The Fed’s current strategy—holding rates steady while assessing tariff impacts—is supported by economists like Kathy Bostjancic of Nationwide, who notes that tariffs may cause a “one-time” price spike but could also harm employment and growth if prolonged. Powell’s patience ensures the Fed can respond to actual economic data rather than political pressure, a balance critical for avoiding stagflation.
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The Broader Economic Implications
Trump’s tariffs aim to protect American industries and generate revenue, but their side effects are undeniable. Rising prices for everyday goods erode consumer purchasing power, particularly for low- and middle-income households. The Labor Department’s June 2025 report highlighted rising rents as a key inflation driver, compounded by tariff-induced increases in clothing and appliances. Meanwhile, some sectors, like travel, have seen price declines due to reduced international tourism, offering temporary relief.
The tariffs’ global impact is also significant. With duties like 17% on Mexican tomatoes and 30% on EU goods, trading partners may retaliate, escalating the global trade war. This could disrupt supply chains, increase costs further, and slow U.S. economic growth. The Federal Reserve’s forecast, updated in June 2025, projects higher inflation through 2027 if tariffs persist, challenging Trump’s claim of “stabilizing inflation.”
For consumers, the immediate concern is affordability. Retailers passing on tariff costs could lead to sustained price increases, while businesses face uncertainty in planning investments. The Fed’s reluctance to cut rates, despite Trump’s demands, reflects a broader strategy to prevent a return to the high inflation of the early 2020s, which soured public sentiment toward the Biden administration.
What’s Next for the U.S. Economy?
The trajectory of U.S. inflation and economic growth hinges on several factors: the scale of future tariffs, global trade responses, and the Fed’s policy decisions. If Trump imposes threatened tariffs, like the 30% EU levy set for August 1, 2025, inflation could climb further, potentially reaching 3.7% by year-end, per Goldman Sachs estimates. This would pressure the Fed to maintain or even raise rates, countering Trump’s push for cuts.
Powell’s leadership will remain under scrutiny, especially as Trump searches for a successor. Any move to replace him with a rate-cut advocate could destabilize markets and weaken the dollar, making imports even costlier. For now, Powell’s data-driven caution offers a buffer against impulsive policy shifts, but the political heat is unlikely to subside.
Consumers and businesses should prepare for higher prices in the short term, particularly for imported goods. Long-term, the economy’s resilience—bolstered by a 4.1% unemployment rate and 2% growth—may mitigate some tariff impacts, but only if the Fed maintains its independence.
Trump’s tariffs are driving inflation, challenging his campaign promise to lower costs. As prices rise, Federal Reserve Chair Jerome Powell’s steady hand is crucial for balancing inflation and growth. Replacing him risks economic instability, undermining the Fed’s independence and market confidence. While tariffs generate revenue, their costs are hitting consumers, and Powell’s cautious approach is the best defense against a stagflationary spiral. The coming months will test the U.S. economy’s resilience and the Fed’s ability to navigate this complex landscape.
