“Too late” Powell Gets It Wrong again

Federal Reserve Chair Jerome Powell has made yet another serious mistake — one in a long series of policy missteps. Despite mounting evidence that interest rates are far too high for current economic conditions, Powell continues to deliver vague commentary about “future inflation risks” while keeping rates at unnecessarily restrictive levels.

An objective, data-driven view of interest rate policy suggests that the Federal Funds Rate should not be this high.

Most economists agree that a Fed Funds Rate in the range of 3.25% to 3.5% is considered “neutral,” meaning it neither stimulates nor restricts economic activity. Yet the current rate stands at 5.3%, nearly two full points above neutral. That means the Fed is actively working to restrain an economy that is already slowing down.

To be clear, when inflation is running hot — well above the Fed’s 2% target — a restrictive policy is appropriate. And it’s true that inflation surged to over 9% in mid-2022. But what did Powell do from January 2021 to June 2022? Nothing. For nearly 18 months, he made the opposite mistake: holding rates too low while prices skyrocketed.

It wasn’t until June 2022, far “too late”, that the Fed aggressively raised interest rates. By then, the inflation fire was already burning out of control. Those rate hikes eventually cooled inflation, although the damage was done. It was a too-late reaction from a Fed Chair who consistently seems a step behind.

Fast forward to today. Growth is clearly weakening. GDP growth dropped from 3% in the summer of last year to 2.3% by fall. This year, growth turned negative in the first quarter. Meanwhile, the soft labor market has the unemployment rate ready to creep higher. Under these conditions, interest rate cuts are not only justified — they are overdue.

And yet, Powell refuses to act. Why? His latest reasoning centers on concerns that the Trump administration’s tariff policy could reignite inflation. But this fear doesn’t hold up under scrutiny.

For one, except for trade with China, the tariffs will be moderate. Most countries and most imports would face a 10% rate, hardly enough to trigger sustained inflation. Higher tariffs would apply to a narrow range of products tied to national security, like steel, aluminum, copper, and certain medical supplies.

More importantly, those modest tariff-related price pressures would be offset by falling energy prices. With the current administration poised to vastly increase domestic production, energy costs — including gasoline — are expected to drop sharply. That alone would help contain inflation.

Even if prices did rise modestly, the Fed could simply adjust. After all, Powell has reversed course before. In 2018, he raised interest rates four times without a clear economic justification. Then he had to walk those increases back in 2019. That mistake slowed growth unnecessarily — another case of Powell reacting too late.

President Trump has called on the Fed to cut rates by 100 basis points — a full percentage point. That would bring the Fed Funds Rate down to approximately 3.3%, but still in the neutral range.

Others agree. The Fed’s current stance is suffocating the housing market. With mortgage rates hovering near 7%, the dream of homeownership is slipping further out of reach for millions of Americans. The Fed’s tight policy is making it worse.

Even Federal Housing Finance Agency Director William Pulte has had enough. In a strongly worded statement, he called for Powell’s immediate resignation if rates aren’t lowered soon.

“Because President Trump has crushed inflation, Fed Chairman Jerome Powell needs to lower interest rates today,” Pulte wrote. “And if not, Chairman Powell needs to resign immediately. Fannie Mae and Freddie Mac can help so many more Americans if Chair Powell would just do his job and lower rates.”

The evidence is overwhelming: Powell’s tenure as Fed Chair has been defined by poor timing, reactive decision-making, and a failure to read economic signals in real time. He was too slow to raise rates when inflation took off. Now, he’s too slow to cut them as growth stalls.

President Trump, Director Pulte, and a growing chorus of economic observers are right — “too late” Powell needs to cut interest rates now or resign. If he doesn’t step down, Trump won’t be able to replace him until May 2026.

In the meantime, the path forward is clear: the Fed must cut interest rates now. Continuing to hold rates at this restrictive level is not only a policy error, but also a disservice to the American people.

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