Trump’s Economic “Golden Age” Hits a Wall as Fed Holds Firm

20 June 2025

REUTERS/Carlos Barria

President Trump’s bold promise of ushering in a new “golden age of America” is now facing stark reality checks from the Federal Reserve. At its June meeting, the Fed decided to hold its policy rate steady at 4.25 - 4.5%, pushing back against mounting political pressure to enact aggressive rate cuts even as economic projections dim.

Fed Chair Jerome Powell and his colleagues have grown increasingly cautious. Growth forecasts have been slashed from 2.1% down to 1.4% while inflation expectations are being revised upward. The central bank now sees inflation reaching as high as 3% later this year, staying well above its 2% goal into 2026. Unemployment, currently near a robust 4.2%, is forecast to climb to around 4.5% as wage growth eases and hiring slows.

Much of the Fed’s concern comes from newly announced tariffs set to roll out in July. While early signs show limited impact, some household appliances and electronics already bear traces of price increases, Powell cautions that full effects won’t be visible until later this summer. He warns that consumers are likely to absorb much of the increase, noting that inflationary pressures remain real as global supply chains respond.

Despite this, President Trump has relentlessly criticized Powell and the Fed, describing him in harsh terms and demanding a dramatic rate rollback, arguing that the U.S. faces no inflation problem and should match the looser stances of European central banks. Yet, Powell and the majority at the Fed view tighter policy as their best tool to guard against mounting inflation amid trade uncertainty .

Within the Fed, there is friction. Governor Christopher Waller, a leading voice on the more dovish wing, argues the central bank should be considering rate cuts as soon as July. Waller believes recent inflation data shows cooling, and he contends that tariff effects will be transitory and shouldn’t drive policy. His stance marks a clear divergence, with only some fed officials sharing his confidence that a rate cut is imminent .

The broader political environment is tense. Trump has threatened not to reappoint Powell and called into question the Fed’s independence, claiming monetary policy should serve government spending needs. But the Fed remains resolute, emphasizing its dual mandate to balance employment and inflation without tipping into politically motivated actions.

Market reactions are mixed. While investors initially expected two rate cuts in 2025, pricing now centers on a single cut or none. Many analysts predict September as the most likely pivot point, with the Fed using the summer to assess trade developments, labor market shifts, and inflation trends.

Abroad, global markets are uneasy. Central banks in Europe and Asia are reducing rates, putting pressure on the Fed’s cautious stance. Regional policymakers are watching closely, aware that rising U.S. rates may affect capital flows, currency values, and global trade patterns .

Energy sector volatility complicates the picture further. With crude prices fluctuating due to geopolitical tensions in the Middle East, the risk of imported inflation rises. Oil traders are hedging accordingly, as markets reassess supply dynamics and potential spillover into headline inflation .

All this leaves borrowing costs high for households and businesses. Mortgage rates, auto loans, and corporate financing remain above pre-pandemic levels, and consumer spending could slow further especially if wage growth doesn’t keep pace and tariffs amplify price pressures.

Looking ahead, the Fed has projected a cautious rate path, expecting several cuts but no deep cuts in the near term . The central bank is signaling that any changes hinge on clear evidence of inflation moderation and trade stability.

President Trump’s promise of a “golden age” has collided with economic reality and the brass tacks of central banking show no signs of bending to political will. With rising trade tensions, easing growth, and inflation above target, the Fed is keeping its foot on the brake.

In this evolving landscape, the stakes are high. Will summer data validate Waller's calls for early rate relief? Can the economy weather tariff shocks without derailing consumer confidence? Or will the Fed’s restraint extend until autumn? The answers will define the next phase of Trump-era economic policy and determine whether optimism can endure or policy will need to adjust to reality.