As President-elect Donald Trump prepares to return to the White House in January, a potential clash with Federal Reserve Chair Jerome Powell looms on the horizon, largely depending on how economic conditions evolve. If inflation flares up and the economy overheats, the Fed may feel compelled to slow its pace of interest rate cuts or even hold rates steady. Such a move could put Powell on a collision course with Trump, who has historically criticized the Fed for not easing monetary policy quickly enough.
This potential tension isn’t new. Powell, who was appointed Fed chair by Trump in 2018, frequently found himself at odds with the then-president during his first term. Trump publicly lambasted Powell and the Fed’s decisions on interest rates, while Powell maintained that the Federal Reserve must remain independent from political influence.
Joseph LaVorgna, who served as chief economist at the National Economic Council during Trump’s first term, anticipates the possibility of renewed friction. “Without a doubt,” LaVorgna said, when asked about the likelihood of conflict. He added, “If the president thinks rates should be lowered, does the Fed, just for public optics, engage?”
The dynamic between Trump and Powell in 2025 will unfold in a different economic environment compared to their first encounter. Under Trump’s initial presidency, inflation was relatively low, and even the Fed’s rate hikes kept borrowing costs well below today’s levels. However, Trump’s proposed fiscal policies for his second term—expansionary and protectionist in nature—could create fresh challenges. His agenda, which includes tougher tariffs, lower taxes, and increased government spending, may pressure the Fed to maintain a more cautious stance on monetary policy to keep inflation in check.
LaVorgna, now chief economist at SMBC Nikko Securities and rumored to be a potential pick for a role in Trump’s new administration, believes the Fed could face difficulty adapting to Trump’s unconventional economic approach. “They’ll be looking at it through a traditional economic lens, but the policy Trump is pursuing is anything but traditional,” he said.
Market uncertainty on Fed moves
Recent shifts in market expectations reflect growing uncertainty about the Fed’s next steps. Futures traders, who had previously anticipated another rate cut before the end of the year, are now less confident, according to data from CME Group’s FedWatch indicator. Projections for rate reductions through 2025 have also scaled back significantly in recent weeks.
This hesitation stems in part from comments by Fed officials, including Governor Michelle Bowman, who recently pointed out that progress on reducing inflation has stalled. Such remarks signal a potential reluctance within the Fed to accelerate rate cuts, even as some observers expect the central bank to remain cautious.
Joseph Brusuelas, chief economist at RSM, predicts that these differing priorities will lead to inevitable friction between the White House and the Fed. “All roads lead to tensions,” he said. “It’s not just the White House—it’s Treasury, Commerce, and the Fed that will intersect.”
Trump’s economic team, which is expected to consist largely of loyalists, will likely push for policies that require supportive monetary conditions. For the Fed, this means pursuing a neutral interest rate policy, balancing growth and inflation. For Trump, however, the definition of “neutral” could mean lower rates to enable his ambitious fiscal plans.
“The fight over where rates should be will create political tensions,” Brusuelas said. “If you’re imposing tariffs while cutting taxes and running up deficits, you’re simultaneously limiting supply while increasing demand. That’s a recipe for inflation, and it forces the Fed into a tough position.”
Mitigating potential clashes
Despite these potential flashpoints, several factors could help reduce tensions between Trump and Powell in the near term.
For one, Powell’s term as Fed chair is set to expire in early 2026, raising the possibility that Trump may simply wait to appoint someone more aligned with his views. Additionally, Trump’s fiscal policies will likely take time to affect the broader economy, meaning any inflationary pressures or growth impacts may not immediately demand a response from the Fed.
Mark Zandi, chief economist at Moody’s Analytics, believes that while Trump’s agenda could create inflationary pressures, the effects might not be severe enough to provoke a sharp Fed reaction in 2025. “I expect higher inflation and slower growth,” Zandi said. “Tariffs and deportations are negative supply shocks—they hurt growth and raise inflation. But the Fed will probably still cut rates next year, just not as quickly as it otherwise might have.”
Zandi sees the real risk of conflict emerging later in the decade. “I don’t think it will be a major issue in 2025,” he said. “But by 2026, the Fed may need to start raising rates again, and that’s when the tensions could escalate.”
Ultimately, the relationship between Trump and Powell could set the tone for U.S. economic policy in the coming years. While their differing approaches to interest rates and inflation management may resurface as a source of friction, much will depend on how economic conditions play out—and whether both sides can avoid turning policy disagreements into outright conflict.
