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Powell and the Fed won’t be able to avoid talking about Trump forever

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Federal Reserve Board Federal Reserve Chairman Jerome Powell speaks during a news conference following a Federal Open Market Committee meeting in Washington on November 07, 2024 in Washington, DC. 

Kent Nishimura | Getty Images

Federal Reserve Chair Jerome Powell dodged question after question at his Thursday news conference from a press corps eager to elicit the central bank leader’s thoughts about President-elect Donald Trump.

At some point, though, Fed policymakers, economists and analysts will need to account for what likely will be an ambitious economic — not to mention political — agenda from the firebrand Republican.

Trump took a dim view of the Powell Fed during his first term in office, calling policymakers “boneheads” and once compared Powell to a golfer who couldn’t putt. Powell, who was nominated by Trump in Nov. 2017 and took office the following February, largely shrugged off the criticism then, and he again deflected Thursday.

“I’m not going to get into any of the political things here today, but thank you,” Powell said during the news conference after being asked at least half a dozen times about the Trump victory and its ramifications. Powell cut the session short around 3:12 p.m. ET, a few minutes earlier than normal following the round of politics-heavy questioning.

However, dealing with the ramifications of a Trump presidency will be almost unavoidable for the Fed leader.

Among the expected policy initiatives on the way are steep tax cuts, expansionary government spending and aggressive tariffs aimed at leveling a global playing field. Trump also has threatened mass deportations for undocumented immigrants, something that could alter the labor market landscape.

How the Trump-Powell relationship unfolds this time is unclear — Powell’s term as chair is up in February 2026 — but it is likely to add another wrinkle into a delicate balance the Fed is trying to navigate with monetary policy.

Differences in policies, politics

“They’re going to get themselves in a bind here, because the communication is going to get much more difficult, and there’s going to be a new administration coming in with its own way of how to view policy,” said Joseph LaVorgna, chief economist at SMBC Nikko Securities.

“It’s not clear to me that that the Fed is going to have the same type of approach of what the [new] administration is doing, and that I think could set up a lot more tension,” he added.

LaVorgna has a unique perspective on the situation, having served as the chief economist for the National Economic Council under Trump. He could be headed back to Washington in 2025 for another stint in the White House.

Fed Chair Powell on whether the president has the power to fire him: 'Not permitted under the law'

Like Trump, LaVorgna has been a Fed critic, though for a seemingly opposite reason as thinks the central bank made a mistake Thursday in lowering its benchmark interest rate by a quarter percentage point. LaVorgna instead advocated the Fed hold off until it can get a clearer picture of a muddied economic landscape with uncertainty over the direction of inflation and unemployment.

Trump historically has favored lower rates, though that too could change if the Fed cuts and inflation rises.

“What if, going forward, the outlook becomes more mixed?” Lavorgna said. “To me, it was obvious they shouldn’t be cutting. And then President Trump I think [could] properly ask, ‘Why are you cutting when things [with inflation] actually don’t look as solid as they might have before?'”

Many economists think Trump’s policies could help stoke inflation at a time when signs are showing that, at least on a relative basis, the pace of price increases is easing back towards the Fed’s 2% target. Some of those economists already this week started marking up their inflation estimates and cutting their outlook for growth, despite a high level of uncertainty about what the Trump agenda will actually entail.

Should those forecasts come true and inflation perk up, the Fed will have no choice but to respond, possibly by slowing the pace of rate cuts or stopping altogether.

Uncertainty ahead

While Powell avoided Trump talk, Wall Street commentary following the Fed’s decision Thursday to lower rates by another quarter percentage point addressed the potential fallout.

“The upcoming year in Federal Reserve policy is going to be a remarkably interesting twelve months indeed,” wrote Joseph Brusuelas, chief economist at RSM.

In a forecast that is close to the Wall Street consensus as well as the fed funds futures market, Brusuelas expects the Fed to lop another full percentage point off baseline rates in 2025. But that outlook could be subject to change.

“This forecast is based on the economic status quo holding, all else being equal,” Brusuelas said. “Because we are entering an era of unorthodox economic populism, that forecast is subject to changes in both trade and immigration policy that could alter the path of employment, the unemployment rate and wage pressures that could cause an increase in the price level.”

While some economists worry that Trump’s policies could cause major fallout, others are taking a more measured approach given the incoming president’s penchant for saber rattling.

Despite implementing heavy tariffs that economists also feared would raise prices dramatically, inflation never topped 3% at any point during Trump’s term and in fact barely cracked 2% as judged by the Fed’s preferred indicator. Moreover, Biden kept Trump’s tariffs largely in place and even added some new ones on electric cars and other items.

Ultimately, the next round of tariffs could add about 0.3% to inflation, according to Nationwide Chief Economist, Kathy Bostjancic.

“We anticipate this should provide reason for the Fed to slow the rate of policy easing a bit, but not stop it,” she said. “Our call for substantive rate cuts over the next year would maintain the easing in financial market conditions that helps lower borrowing costs for consumers and businesses and continues to support the labor market and ongoing expansion.”

Still, the prospect of the Fed asserting its independence and moving policy in either direction, irrespective of Trump’s wishes, sets up a potential clash.

Trump previously has asserted that the president at least should be consulted on monetary policy. Fed officials, though, insist on independence from fiscal and political considerations, which could get tougher in the days ahead.

“The easy cuts have been made, and maybe December won’t be too contentious either,” said Elyse Ausenbaugh, head of investment strategy at J.P. Morgan Wealth Management. “Thereafter, I imagine the Fed is asking the same questions as investors – to what extent and when will the incoming Trump administration implement its campaign policy proposals?”

Economics

Will Elon Musk’s cash splash pay off in Wisconsin?

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TO GET A sense of what the Republican Party thinks of the electoral value of Elon Musk, listen to what Brad Schimel, a conservative candidate for the Supreme Court of Wisconsin, has to say about the billionaire. At an event on March 29th at an airsoft range (a more serious version of paintball) just outside Kenosha, five speakers, including Mr Schimel, spoke for over an hour about the importance of the election to the Republican cause. Mr Musk’s political action committees (PACs) have poured over $20m into the race, far more than any other donor’s. But over the course of the event, his name came up precisely zero times.

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Economics

German inflation, March 2025

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Customers shop for fresh fruits and vegetables in a supermarket in Munich, Germany, on March 8, 2025.

Michael Nguyen | Nurphoto | Getty Images

German inflation came in at a lower-than-expected 2.3% in March, preliminary data from the country’s statistics office Destatis showed Monday.

It compares to February’s 2.6% print, which was revised lower from a preliminary reading, and a poll of Reuters economists who had been expecting inflation to come in at 2.4% The print is harmonized across the euro area for comparability. 

On a monthly basis, harmonized inflation rose 0.4%. Core inflation, which excludes food and energy costs, came in at 2.5%, below February’s 2.7% reading.

Meanwhile services inflation, which had long been sticky, also eased to 3.4% in March, from 3.8% in the previous month.

The data comes at a critical time for the German economy as U.S. President Donald Trump’s tariffs loom and fiscal and economic policy shifts at home could be imminent.

Trade is a key pillar for the German economy, making it more vulnerable to the uncertainty and quickly changing developments currently dominating global trade policy. A slew of levies from the U.S. are set to come into force this week, including 25% tariffs on imported cars — a sector that is key to Germany’s economy. The country’s political leaders and car industry heavyweights have slammed Trump’s plans.

Meanwhile Germany’s political parties are working to establish a new coalition government following the results of the February 2025 federal election. Negotiations are underway between the Christian Democratic Union, alongside its sister party the Christian Social Union, and the Social Democratic Union.

While various points of contention appear to remain between the parties, their talks have already yielded some results. Earlier this month, Germany’s lawmakers voted in favor of a major fiscal package, which included amendments to long-standing debt rules to allow for higher defense spending and a 500-billion-euro ($541 billion) infrastructure fund.

This is a breaking news story, please check back for updates.

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Economics

First-quarter GDP growth will be just 0.3% as tariffs stoke stagflation conditions, says CNBC survey

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U.S. President Donald Trump speaks to members of the media aboard Air Force One before landing in West Palm Beach, Florida, U.S., March 28, 2025. 

Kevin Lamarque | Reuters

Policy uncertainty and new sweeping tariffs from the Trump administration are combining to create a stagflationary outlook for the U.S. economy in the latest CNBC Rapid Update.

The Rapid Update, averaging forecasts from 14 economists for GDP and inflation, sees first quarter growth registering an anemic 0.3% compared with the 2.3% reported in the fourth quarter of 2024. It would be the weakest growth since 2022 as the economy emerged from the pandemic.

Core PCE inflation, meanwhile, the Fed’s preferred inflation indicator, will remain stuck at around 2.9% for most of the year before resuming its decline in the fourth quarter.

Behind the dour GDP forecasts is new evidence that the decline in consumer and business sentiment is showing up in real economic activity. The Commerce Department on Friday reported that real, or inflation-adjusted consumer spending in February rose just 0.1%, after a decline of -0.6% in January. Action Economics dropped its outlook for spending growth to just 0.2% in this quarter from 4% in the fourth quarter.

“Signs of slowing in hard activity data are becoming more convincing, following an earlier worsening in sentiment,” wrote Barclays over the weekend.

Another factor: a surge of imports (which subtract from GDP) that appear to have poured into the U.S. ahead of tariffs.

The good news is the import effect should abate and only two of the 12 economists surveyed see negative growth in Q1. None forecast consecutive quarters of economic contraction. Oxford Economics, which has the lowest Q1 estimate at -1.6%, expects a continued drag from imports but sees second quarter GDP rebounding to 1.9%, because those imports will eventually end up boosting growth when they are counted in inventory or sales measures.

Recession risks rising

On average, most economists forecast a gradual rebound, with second quarter GDP averaging 1.4%, third quarter at 1.6% and the final quarter of the year rising to 2%.

The danger is an economy with anemic growth of just 0.3% could easily slip into negative territory. And, with new tariffs set to come this week, not everyone is so sure about a rebound.

“While our baseline doesn’t show a decline in real GDP, given the mounting global trade war and DOGE cuts to jobs and funding, there is a good chance GDP will decline in the first and even the second quarters of this year,” said Mark Zandi of Moody’s Analytics. “And a recession will be likely if the president doesn’t begin backtracking on the tariffs by the third quarter.”

Moody’s looks for anemic Q1 growth of just 0.4% that rebounds to 1.6% by year end, which is still modestly below trend.

Stubborn inflation will complicate the Fed’s ability to respond to flagging growth. Core PCE is expected at 2.8% this quarter, rising to 3% next quarter and staying roughly at that level until in drops to 2.6% a year from now.

While the market looks to be banking on rate cuts, the Fed could find them difficult to justify until inflation begins falling more convincingly at the end of the year.

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