The Blubber

• President Donald Trump warned on Monday that the U.S. economy could weaken unless the Federal Reserve cuts interest rates immediately. He once again criticized Fed Chair Jerome Powell, who has said that rates should remain unchanged until it’s clearer that Trump’s tariff policies won’t cause sustained inflation.

“With costs trending so nicely downward, just as I predicted, there’s almost no inflation—but the economy could SLOW unless Mr. Too Late, a major loser, cuts interest rates NOW,” Trump posted on Truth Social.

The comments, along with what appeared to be escalating pressure on Powell—whom Trump has previously said he’d like to remove—sent stock markets lower and bond yields higher. Investors and analysts began to consider the consequences if Trump were to provoke a confrontation over the Fed’s independence or attempt to dismiss Powell before his term expires in just over a year.

It remains uncertain whether Trump has the legal authority to remove Powell. Even if he succeeded, the Fed’s structure—comprising the Board of Governors and regional bank presidents—would still retain control over interest rate policy, potentially prompting the White House to further escalate its campaign against the central bank.

Trump’s repeated calls to fire Powell come amid his push for immediate rate cuts to counter a projected economic slowdown and potential labor market harm caused by his own tariff policies. Meanwhile, Fed officials have urged restraint, expressing concern that the new tariffs could reignite inflation, which is still above the Fed’s 2% target.

The Fed is set to meet next on May 6–7 and is expected to keep the benchmark interest rate unchanged in the 4.25% to 4.50% range.

Weaker Outlook Economic growth and sentiment have both taken a hit as Trump intensifies efforts to raise tariffs on imports from key U.S. trading partners, including a wide array of essential goods. Many leading economists now estimate an increased likelihood of a recession this year. The Conference Board’s Leading Economic Index fell 0.7% in March and, while not yet signaling a recession, pointed to slowing momentum. Consumer confidence, manufacturing activity, and stock market performance have all weakened.

Inflation is forecast to decline in the near term, but many analysts believe Trump’s tariff measures will push it back up—possibly to 4% or more—for the remainder of the year.

While Fed officials say that this inflation bump may be temporary and might still allow for future rate cuts, they remain concerned it could become entrenched, requiring continued tight monetary policy.

Chicago Fed President Austan Goolsbee told CNBC on Monday that the Fed needs more time to assess the full economic effects of Trump’s actions. “The macro impact of tariffs could be modest,” he said. “We don’t yet know how supply chains will be affected, so it’s best to remain steady and wait for a clearer picture before making a move.”

Stocks, already down on investor concerns over Trump’s attacks on Powell, fell further after his Truth Social post. The S&P 500 dropped 2% by the end of the day.

Rising Treasury yields are particularly sensitive for the administration, as they translate to higher borrowing costs for mortgages, car loans, and business financing. While the Fed controls short-term rates, long-term yields are driven by market forces and can be influenced by—but remain independent of—central bank policy.