The Federal Reserve met this week and decided to make no change in its interest rate policy.
It was the fourth straight meeting in which rates were left unchanged.
Chairman Jerome Powell stated that the reason was that the Fed needed more confidence that inflation is coming down. He cited uncertainty about the effect of tariffs on inflation as the primary reason that they did not have more confidence that inflation was controlled.
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Link: https://x.com/RedWave_Press/status/1935430219105529861 |
Of note, the Fed cut interest rates four times amounting to a one percent total decrease between August and December, 2024 but have held rates steady since Donald Trump became President.
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Source: https://tradingeconomics.com/united-states/interest-rate |
By comparison, the European Central Bank has cut rates eight times in the last 12 months totaling two percentage points and Canada has cut seven times for a total of two and a quarter points.
The Fed policy has also been to hold tight on interest rates despite the fact that Core inflation was just .1% last month compared to expectations of .3%.
It was the lowest year over year inflation rate (2.8%) in four years.
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Source: https://tradingeconomics.com/united-states/core-inflation-rate |
In fact, the Fed was lowering interest rates in August through December of last year when inflation was running considerably higher than it has since Trump took office at the end of January.
Powell is still saying that he expects the Fed to lower rates at least two times before the end of the year. I wonder how he can stick to that forecast while also saying he is not confident enough in the inflation data?
My concern is that the Fed will be too late in lowering rates just as they were abysmally late in raising rates as they kept telling us that inflation was "transitory" during the Biden term.
I am no economist but I am seeing a number of "For Sale" signs on houses in my area that I have not seen in a long time, we are seeing increasing reports of layoffs and consumer spending last month was down.
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Source: https://www.cnbc.com/2025/06/17/retail-sales-may-2025-.html |
It raises a question as to whether Powell and the Fed are motivated more by politics right now than sound economic policy?
At the time Trump first announced his tariff policies it was condemned by an overwhelming number of economists. Most argued that it would make the inflation we saw the last few years much worse.
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Source: https://www.reddit.com/r/Economics/comments/1igx6u4/economists_agree_trump_is_wrong_on_tariffs/ |
Perhaps that will be proven true but the fact that we still have not seen evidence of it in the CPI numbers thus far is already befuddling to those same economists.
From The Economist.com earlier this month.
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Source: https://www.economist.com/finance-and-economics/2025/06/05/trumps-tariffs-have-so-far-caused-little-inflation |
At the same time, the trade deficit has been been halved from $120 billion to $60 billion a month since Trump's tariff policy was first announced.
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Source: https://tradingeconomics.com/united-states/balance-of-trade |
And both personal income and personal savings is up since Trump took office.
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Source: https://fred.stlouisfed.org/series/RPI |
The Federal Reserve Board of Governors in Washington, D.C. employs more than 400 Ph.D. economists.
I hope that they know what they are doing.
Of course, you may recall that it was the judgment of Jerome Powell and the Federal Reserve economists in 2021 that any inflation resulting from the Biden fiscal stimulus bill during Covid would be "transitory".
We know how that worked out.
Lest we think that economists opining on the American economy might have it wrong it is nothing compared to what we have seen in Argentina.
Economists were predicting doom in Argentina if conservative Javier Milei was elected and instituted his government budget cuts and free market reforms.
That was then. This is now.
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Source: https://x.com/DrEliDavid/status/1932532980066460026 |
I have nothing against economists.
However, I am not interested in predictions and forecasts.
Show me the data and facts if you want to persuade me.
Unfortunately, too often the the factual reality that unfolds does not match the forecasts of the economists.
Warren Buffett makes the point much better than I can.
All of this would be funny if it were not so serious.
The decisions the Fed makes affects every American in some way---their jobs, home values, stock prices, retirement savings, student loans and more.
Does the Fed really know what they are doing?
We can only hope.