Last Friday in Jackson Hole, Federal Reserve -chairman Jay Powell finally – and reluctantly – admitted what the Trump team has always said: rates do not feed inflation.
At most, rates create a one -off adjustment of the prices, not the kind of runaway spiral that requires punishing tariff increases. And even that one-off bump can be negligible if, as we have for a long time, foreign exporters-not American consumer-de most or all costs bear.
The implication is clear: whether the impact is zero or just a one-off step-up in prices, there is absolutely no justification for the FED to hide behind “tariff uncertainty” as an excuse for excessively restrictive interest policy.
Federal Reserve -chairman Jerome Powell walks away after a press conference, 7 May 2025, in the Federal Reserve in Washington. (AP Photo/Jacquelyn Martin)
This is really a historical revelation of a FED chair that has long misunderstood the power of Trumpnomics -the four beautiful riders of economic growth and price stability: tax reductions, deregulation, strategic energy -dominance and fair trade.
The foolish interest rate policy of the FED is stopping the American economy to bloom
Trumpnomics supplied both strong economic growth and price stability in the first term. It delivers again in the second.
Markets immediately recognized the blow of Powell’s Tariefepiphany. The Dow went through his 45,000 ceiling – and I stay on record and predicted a march to 50,000. The proceeds on the 10 and 30-year-old treasuries tumbled, which greatly higher the bond prices.
It is clear that Wall Street Powell’s Dovish rate message: The door to a rate reduction in September is now wide open. The only tension is or Powell will nibble with 25 basic points – or cut much more brave.
But here is the persistent fear, from the west wing to Wall Street: although Powell can now understand that rates do not feed on persistent inflation, he still does not understand who pays.
Good economic data are bad news for Trump’s interest rate
Memo To Jay: Each of the most important trading partners in America – the same countries that drive our annual $ 1 trillion trade shortage – is deeply dependent on access to the American market. When Trump hits rates, it is their exporters, not our consumers who bear the burden. Without the US’s question, their economies are faltering – so pay the tariff piper that our trading partners have to.
That is why in the first term of Trump, despite all the handwrings of the “Panicans” about threatening inflation, rates on everything, from steel and aluminum to China, the opposite produced: robust growth with price stability.
If Powell is clinging and keeping the rates too restrictive, he will continue to harm the American economy. American families are already crushed by the world’s highest mortgage interest rate, small companies cannot get affordable credit and exporters are confronted with a dollar, so that it is overvalued over global markets.
Worldwide rate spreads underlines how the Fed is with the rest of the world from contact. The deposit facility of the European Central Bank is 2%. The Bank of Japan is almost 0.5%. China has its seven -day repo at 1.4%. Against that background, the target range of 4.25% –4.50% of the Fed remains a striking bite – more than 200 basic points above Europe, almost 400 above Japan and Triple China.
The predictions of the rate from the left fall flat while Trump’s America thrives
The result: the American economy combines the world’s highest policy rates and mortgage interest with the world’s strongest currency – a triple hit for American exporters.
- Financing of disadvantage: American manufacturers pay more to borrow, making new factories and equipment more expensive.
- Currency formation: Increased FED rates keep the dollar too expensive, so that the price of American exports is blown up and foreign competitors gives a price company.
- Market share erosion: Foreign rivals win contracts, not because they innovate, but because they borrow cheaply and undermine the American prizes.
The Powell Squeeze is just as punished on the home front. Average 30-year-old fixed mortgage interest roots in the range of 6-7%, double pre-strandemic levels. That locks millions of young families from the housing market and maternal construction – historically one of the most powerful engines of American recovery.
Small companies, depending on bank credit instead of Wall Street-Bond-Bond Markets, are confronted with double digits of loan rates that suffocate the creation of jobs. Consumers pay more about everything, from credit cards to car loans.
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And for what? There is already disinflation. Headline CPI is back in the neighborhood of 3% on an annual basis. The desired PCE measure of the FED is getting closer to 2.5% – essentially on goal. The energy prices are modest, the supply chains are healed and the wage pressure stabilizes. Yet the American real (inflation-corrected) rates are now higher than at any time in almost two decades – A textbook of overdowning.
Powell defends this position by claiming that the Fed “must anchor the inflation expectations”. He has recorded his pearls about the mirroring of tariff -controlled inflation, even if history shows that those fears are exaggerated.
The admission of Powell’s Jackson Hole-that rates at most create a one-off price adjustment-Was an Epiphany long in the arrival. The question now is whether Powell will act on that opening.
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A token 25-based point trim in September would not cut it. In order to coordinate America again with its global peers, to alleviate the pressure on families and farmers and to restore the competitiveness for American exporters, the FED has to move decisively with a maximum 100 basic point.
It is time for the Federal Reserve to stop confusing tight money for caution. By keeping our rates far above the rest of the world, no sign is in force. It is a policy error – one that leaves American growth and hands our competitors the benefit.
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