Trump's ongoing pressure on the Federal Reserve, combined with tariffs and policy shifts, has fueled economic volatility, including higher inflation forecasts and labor market softening. The Fed remains cautious on rate cuts amid these tensions, projecting slower growth short-term but potential stabilization in 2026. Predictions point to persistent uncertainty rather than outright collapse.
Trump-Fed Tensions
Trump has escalated attacks on Fed independence, firing Governor Lisa Cook and criticizing Chair Powell over rates and renovations. Powell defends the Fed's autonomy, noting its self-funded status shields it from cuts. Markets react negatively, with dollar weakness and stock dips following such moves.
Policy Impacts
Tariffs at 14.1% effective rate drive inflation up to 2.7-3% projections, exceeding Fed targets. Immigration curbs and deportations slow growth, while consumer sentiment hits lows. GDP forecasts for 2025 hover at 1-2%, with unemployment rising to 4.4-4.6%.
Fed Outlook
Fed paused cuts after September/October reductions, holding rates at 3.75-4% amid sticky inflation at 3%. Projections show two cuts in 2026, inflation easing to 2.4%, and growth rebounding to 2.3% as tariff effects fade. A Trump-appointed chair could shift dynamics, but FOMC consensus limits unilateral moves.
2026 Scenarios
Optimistic views expect productivity gains and spending to lift growth post-tariff subsidence. Pessimistic risks include stagflation from tariffs/immigration, with Trump policies as top threat. Economists see modest acceleration but downside from trade wars.
