[Text/Observer Network Zhang Zhongjian] Local time on May 6th and 7th, the Federal Reserve will hold its third monetary policy meeting this year. It is expected that Federal Reserve Chairman Powell will withstand pressure from U.S. President Trump and choose to maintain the current interest rate unchanged.

According to Associated Press report on May 5th, the Federal Reserve is likely to maintain the benchmark interest rate at around 4.3%. Most of Powell and the other 18 members of the Federal Reserve's interest rate-setting committee have indicated that they want to observe the impact of Trump's tariffs on the economy before taking any action.

The report stated that last Friday (May 2nd), Trump posted on social media platforms, claiming there was no inflation and the Federal Reserve should lower interest rates. "Gasoline prices have just fallen below $1.98 per gallon, which is the lowest level in years, grocery (and egg!) prices are falling, energy prices are declining, mortgage rates are falling, employment is strong, and there is more good news. Tariffs have brought in billions of dollars."

However, this statement is not entirely accurate. The Associated Press pointed out that in the past three months, food prices have risen by 0.5% for two months, with a year-over-year increase of 2.4%. Gasoline and oil prices have indeed dropped, down 10% compared to a year ago, partly due to market concerns about a recession. However, according to data from the American Automobile Association (AAA), the average price of gasoline in the United States is $3.18 per gallon.

It was reported that the Fed's preferred inflation indicator - the PCE index - rose by 3.6% in the first quarter this year, far higher than the 2% target, but cooling inflation in March sent positive signals.

Economists believe that if there were no tariff policies, the benchmark interest rate aimed at curbing borrowing and consumption and controlling inflation might have been lowered soon. But because Trump's extensive tariff policies could push up prices in the coming months, the Federal Reserve cannot cut interest rates at this stage.

Vincent Reinhart, chief economist at New York Mellon Bank, said that during the supply chain crisis in 2021, the Federal Reserve misjudged inflation as "temporary," leaving a psychological shadow. Inflation eventually soared to 9.1% in June 2022.

Reinhart said that this time, the Federal Reserve would be more cautious. "The current Federal Reserve must wait for data support and adjust slowly based on the data."

On April 16, 2025, New York, USA, a supermarket posted sale restriction notices. IC Photo

Recently, Trump has intensified his criticism of Powell, calling him "playing politics" and threatening that he "would have to leave quickly if I wanted to." These remarks caused fluctuations in market sentiment, and investors worried about the erosion of the Federal Reserve's independence, causing stocks to fall sharply. Subsequently, Trump backtracked, saying he had no intention of firing Powell and stating that he would not dismiss Powell before the end of his term.

Powell was nominated as chairman of the Federal Reserve by Trump in 2017, approved by the Senate after being appointed by Trump, and reappointed after being nominated by President Biden in 2022, with his term ending in May 2026. Powell previously stated that under U.S. law, Trump had no right to dismiss him.

Economist Preston Mui said that Trump's pressure on Powell made the decision to cut interest rates more complicated, as recent interest rate cuts might be seen as bowing to the White House.

"You can imagine that without pressure from the Trump administration, the Federal Reserve might have cut interest rates earlier because they could have done so without hesitation, basing their decision purely on data," Mui said.

It was reported that in early April, Powell once stated that the large-scale tariff measures newly introduced by the Trump administration might lead to rising inflation and slowing economic growth, which is a tricky combination for the Federal Reserve. Usually, if economic growth slows down, the central bank will lower key interest rates to reduce borrowing costs and stimulate the economy, while raising or maintaining high interest rates to curb consumption when fighting inflation.

Powell once called the impact of tariffs on inflation temporary, but recently he said that it "may also be more enduring." The Associated Press believes that this indicates that Powell may wait several months to confirm that tariffs will not continue to push up inflation before considering cutting interest rates.

Some economists predict that the Federal Reserve may start cutting interest rates as early as September, or it may not cut interest rates throughout the year. However, if tariffs severely impact the economy, leading to layoffs and rising unemployment, the Federal Reserve may take action earlier. Wall Street investors seem to bet on this scenario, expecting the first interest rate cut to be in July.

It is worth noting that the Federal Reserve has caught the attention of Elon Musk, head of the U.S. Department of Government Efficiency (DOGE). On April 30th, Musk publicly criticized the renovation project of the Federal Reserve's Washington D.C. headquarters at the White House and considered sending his DOGE team to the Federal Reserve.

By 2022, the cost of the Federal Reserve's multi-year headquarters renovation project had increased to $2.5 billion. The Federal Reserve said that this figure was due to the surge in inflation when the project began in 2021, followed by rising material and labor costs.

Musk told reporters that the project was shockingly expensive. "Ultimately, it's taxpayer money. I think we really—absolutely should—look into whether the Federal Reserve really spent $2.5 billion on their interior designers."

The Associated Press pointed out that the review of the Federal Reserve by the Department of Government Efficiency indicates that even though Trump withdrew his threat to fire Powell, the Federal Reserve as an independent institution still faces unusually strong political pressure.

This article is an exclusive contribution from Observer Network and cannot be reprinted without permission.

Original article: https://www.toutiao.com/article/7501167090020172338/

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