People forget that Jay Powell is not an economist. The Federal Reserve chair was trained as a lawyer, receiving his JD from Georgetown University in 1979. He then went on to work as an investment banker.
Maybe that’s why Powell keeps getting it wrong. He’s not an economist; has he instead become a politician? That’s the view of President Trump, who is pushing Powell to lower interest rates, to no avail.
For the fourth straight month, the Federal Open Market Committee held rates steady, even though many think the time has come to give borrowers a break. Even though the Fed itself is projecting slowing growth and rising unemployment. Their excuse? A jump in inflation, visible so far only to those with an anti-tariff agenda.
In the lead-up to yesterday’s Fed meeting, Trump joked that he himself could do a better job than “stupid” Powell, whom he has threatened to fire.
Why the animus? Check the record, and consider Powell’s latest decision to keep interest rates steady. Remember that the Fed has a dual mandate; it aims to keep inflation around 2 percent as measured by the Personal Consumption Index, and to maintain low unemployment.
Last fall, about six weeks before the presidential election, the Fed cut interest rates by 50 basis points, just in time to juice the economy and boost Kamala Harris’ chances of becoming president. Real GDP growth in the second quarter of last year surprised economists by jumping to 2.8 percent, well ahead of the anemic 1.4 percent expansion recorded in the first quarter.
Job growth remained robust for most of the year, averaging 186,000 job additions per month. Employment growth slowed some in the summer, but the economy added 142,000 jobs in August, which was reported before the Fed met in September. Unemployment was steady at 4.2 percent; there was no employment emergency.
Meanwhile, inflation for August 2024, as measured by the CPI, the most recent month reported to the Fed before they slashed rates, was 2.5 percent.
Yes, the rate of inflation had been dropping, but it was still far above the Fed’s target. And, in fact, the month-to-month rate had actually accelerated in July from the prior two months, and held steady in August. In other words, while certainly inflation had moderated, it was still an issue.
So why did the Fed choose to cut rates? Good question. And in fact, inflation turned higher again after that rate cut. In September it rose to 2.6 percent, and by January, just as President Trump took office, it had bounced back up to 3 percent. Real GDP growth, meanwhile, came in at a robust 2.4 percent in the fourth quarter.
In retrospect, a rate cut — and especially a jumbo cut of 50 basis points — was not necessary, unless you were Kamala Harris and wanted to head into the election touting a strong economy.
Fast forward to today, when Powell has assumed the role of soothsayer. He claims to be guided by “the data”, but the data today shows inflation much lower, actually hitting the Fed’s 2 percent inflation target. Meanwhile, economic growth is slowing and the labor market showing some weakness. It would seem a perfect time to reduce interest rates — to give the economy a boost. But Powell has just chosen not to do that.
Inflation has recently dropped to the lowest level in four years. The core PCE number, closely watched by the Fed, was up 0.1 percent in April month-to-month, and 2.5 percent above the year prior. Last September, when Powell cut rates, it was running at 2.7 percent.
The job market has shown some cracks. The latest month showed a gain of 139,000, slightly better than expected, but below the prior month’s 147,000 addition. Also, the Household employment level, reported in another survey, fell by almost 700,000. Unemployment was steady at 4.2 percent, but other indicators showed the jobs market softening.
The most recent JOLTS report shows job openings at about 7 million — gradually declining, but down sharply from the 12 million level recorded in 2022. More concerning is the latest job report from the National Federation of Independent Businesses, where small companies’ plans to hire “remain in weak territory.” The Fed itself, in its latest beige book report, noted: “All Districts described lower labor demand, citing declining hours worked and overtime, hiring pauses, and staff reduction plans.” That’s presumably why they bumped up their 2025 forecast of inflation from 4.4 percent (recorded in March) to 4.5 percent.
Given slowing inflation and a weakening jobs picture, and since the Fed expects two rate cuts later this year, why not take action now? In his press conference after the rates announcement, Powell said, “Inflation has eased significantly from its highs in mid-2022 but remains somewhat elevated relative to our 2 percent longer-run goal.” Yes, and that was true last September, too, when the Fed slashed rates.
Powell’s ultimate excuse: “increases in tariffs this year are likely to push up prices and weigh on economic activity.” Fair enough, but so far that hasn’t happened.
Does it matter? Yes, especially to young people starting out who want to buy a home. High interest rates are depressing the housing market. People fortunate to have long-term low-interest rate mortgages on their homes are reluctant to move, not wanting to take on new borrowings at nearly 7 percent, where mortgages are today. That means the supply of houses for sale is low.
Although high mortgage rates (the 30-year is now close to 7 percent) should theoretically mean lower prices, helping buyers, that largely isn’t happening. The median sales price of existing homes in April 2025 was $414,000, an all-time high for the month of April and the 22nd consecutive month of year-over-year price increases, according to Bankrate. New home prices have slipped slightly, but not enough to encourage a rebound.
The homeownership rate dropped to 65.1 percent last quarter, the lowest level since the beginning of 2020. Just before COVID hit, that rate was 67.9 percent.
Buying a home is how millions of Americans have traditionally begun their financial journey; it is an investment that over time not only provides shelter but also encourages saving and historically has created wealth.
Liz Peek is a former partner of major bracket Wall Street firm Wertheim and Company.