US central bankers resist pressure from Donald Trump to cut interest rates

Good morning and welcome to White House Watch! Today let’s talk about:

Jay Powell 1, Donald Trump 0.

The president did not get what he wanted from the US Federal Reserve chair yesterday. Jay Powell and his fellow central bank officials held interest rates steady, defying pressure from Donald Trump to slash borrowing costs.

The Fed kept its benchmark rate between 4.25 and 4.5 per cent and signalled it wouldn’t be moving anytime soon: Powell said that rate-setters “do not need to be in a hurry to adjust our policy stance”.

Trump was quick to express his displeasure with the decision and derided the central bank, which operates independently. He blamed Powell for inflation and said the Fed was too focused on diversity, equity and inclusion instead of high prices.

“Because Jay Powell and the Fed failed to stop the problem they created with Inflation, I will do it by unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing,” he wrote on Truth Social soon after the rate announcement.

“If the Fed had spent less time on DEI, gender ideology, ‘green’ energy, and fake climate change, Inflation would never have been a problem. Instead, we suffered from the worst Inflation in the History of our Country!”

Powell, however, refused to react to Trump’s demands. During his press conference yesterday he stated that he was “not going to have any response or comment on what the president said”. The new administration’s policies were “not for us to criticise, or to praise”, he added.

Cornell University professor Eswar Prasad told the FT’s Claire Jones that this rate decision “will cue the political pressure”, adding:

The coming months will be extraordinarily challenging for the Fed if inflation stays sticky above its target level even as Trump piles on intense pressure to cut rates and bring down borrowing costs.

The latest headlines

What we’re hearing

Trump wants to destroy nuclear missiles with space lasers [free to read].

He made the proposal as part of an executive order that tasks his new defence secretary Pete Hegseth with coming up with a plan, in the next 60 days, to defend the US against missile attacks.

Trump’s idea includes building an air defence system over the US that he’s dubbed the “Iron Dome for America”, in a nod to Israel’s renowned missile shield. But what he actually has in mind is more akin to Ronald Reagan’s so-called Star Wars programme, launched in 1983 at the height of the cold war.

This Star Wars 2.0 fantasy would cost hundreds of billions of dollars — and face immense technological challenges. It also could provoke China and Russia to take countermeasures that would cancel out its effects.

Analysts say that a leakproof, space-based missile shield is all but impossible. “There is no magical security blanket,” said Tom Karako, a leading missile expert at the CSIS think-tank in Washington.

Plus, “one cannot put active defences everywhere that would be needed to defend cities, critical infrastructure and military sites”, Stacie Pettyjohn, of the Center for a New American Security think-tank, told me.

Israel’s Iron Dome defends only small areas from short-range, low-flying and non-nuclear missiles. Trump’s version seeks to intercept intercontinental ballistic missiles that travel 100 times further and seven times faster. (The US is almost 450 times bigger than Israel.)

He wants it to deploy “space-based interceptors” — a web of satellites, some equipped with lasers. But detecting, intercepting and destroying ballistic nuclear missiles during the three- to five-minute period before they enter orbit, would require laser beams effective over hundreds of kilometres.

Technology like that simply doesn’t exist.

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