President Trump said Sunday night that the Federal Reserve was right to keep interest rates unchanged at its policy meeting last week.
"I'm not surprised," he told reporters when asked for his reaction to the central bank's decision to hold borrowing costs steady following three consecutive rate cuts at the end of 2024.
"I think holding the rates at this point was the right thing to do."
The president's new commentary about monetary policy came 10 days after Trump said he would "demand" lower rates.
It also coincides with a roll out of his tariff plans for America's largest trading partners that some economists and Fed watchers predict will have an effect on the path of inflation and the central bank's rate plans.
Starting Tuesday, Trump plans to levy 25% tariffs on all Mexican and Canadian goods (except for a lower 10% tariff on Canadian oil imports) and a 10% tariff on China.
Some Fed watchers said the new tariffs will push inflation higher, meaning that any rate cuts in 2025 are now off the table.
"The resulting surge in US inflation from these tariffs and other futures measures is going to come even faster and be larger than we initially expected," said Paul Ashworth, chief North America economist for Capital Economics.
"Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut."
The new developments "will likely reinforce" the Fed's "inclination to sit on the sidelines and to remain below the radar as much as possible,” said JPMorgan chief economist Michael Feroli.
Trump on Sunday didn't explain why he thought the Fed made the right decision to pause.
On Jan. 23, Trump said that he would "demand" lower rates and that he thinks the Fed will listen to him. He said then that he expected to talk directly with Fed Chair Jerome Powell "at the right time."
After the Fed last Wednesday held rates steady in the range of 4.25%-4.5%, Trump posted a message to his social media platform arguing Powell and the central bank "failed to stop the problem they created" on inflation.
He also said the Fed "has done a terrible job" regulating banks and argued the institution had spent too much time focused on "DEI, gender ideology, 'green' energy, and fake climate change."
The president said in that post he would address inflation by "unleashing American Energy production, slashing Regulation, rebalancing International Trade, and reigniting American Manufacturing."
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"I will do much more than stopping Inflation, I will make our Country financially, and otherwise, powerful again!"
On Sunday evening, Trump did acknowledge there could be some “pain in the short term” from tariffs.
"We may have short term some little pain, and people understand that, but long term, the United States has been ripped off by virtually every country in the world,” the president said. “We have deficits with almost every country, not every country, but almost, and we're going to change it."
James Fishback, CEO of investment firm Azoria, said "any short-term impact on inflation and growth must be understood in the context of President Trump’s bigger goal: reviving U.S. manufacturing, creating good-paying jobs, curbing inflation, and increasing long-term growth.”
In his view "the Fed should continue holding rates steady."
EY Chief Economist Gregory Daco estimates Trump’s tariffs on imports from Mexico, Canada and China, would result in a contraction in US GDP by 1.5% this year and 2.1% in 2026 as higher import costs dampen consumer spending and business investment.
He said inflation would rise by 0.7% in the first quarter and average 0.4% for the year, before gradually easing as demand comes down and the dollar strengthens offsetting price gains.
"The Federal Reserve’s response will be critical,” said Daco. "If tariffs drive inflation expectations higher, the Fed may feel pressured to keep rates restrictive for longer, tightening financial conditions and weighing on growth momentum."
Wilmington Trust bond portfolio manager Wilmer Stith said he is looking at the impact of the tariffs as less of a threat that leads to higher inflation and more of a factor that could put downward pressure on growth. That could result in lower long-term bond yields.
"The way we look at the tariffs now, we think that they could weaken US economic growth, and keep the Fed stuck from cutting rates," Stith said in an interview.
Though Stith added that if the job market weakens the Fed could cut rates after all.
"The Fed is going to be very attuned to employment weakness," he said. "It's really a jump ball though."
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