As the world’s central bankers and assorted groupies gathered for their annual conclave in Jackson Hole, Wyoming, they were startled to learn that many of them have bats in their belfries. Before Donald Trump could post his agreement, it turned out that bats had invaded the lodge in which some bankers were housed.
Federal Reserve Board chairman Jerome Powell was facing other problems as he prepared his eighth and valedictory address to this global conclave, the least of which was an unhappy president calling for the Fed’s benchmark interest rate to be cut from 4.25-4.50 per cent to 1 per cent.
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Powell is lumbered with a history of massively wrong economic forecasts, including labelling as “transitory” the runaway inflation that peaked at 9.1 per cent in June 2022. Undeterred, and with a suitable bow to “significant uncertainty”, the chairman concluded that the effects of tariffs on the trend in inflation “will be short lived” — which in this context means prices will jump, but not continue to rise thereafter.
That one-time jump in prices will not be pain-free. Economists at Goldman Sachs predict that average Americans will bear two-thirds of the cost of tariffs by the autumn. Trump was furious with this challenge to his narrative, and demanded that Goldman Sachs’s chief executive “get a new economist,” which the bank has declined to do.
So far, Trump has not yet demanded that S&P Global fire its chief business economist for echoing Goldman Sachs by reporting: “Average prices charged for goods and services rose at the sharpest rates since August 2022 … Companies have … passed tariff-related cost increases through to customers in increasing numbers, indicating that inflation pressures are now at their highest in three years.”
Voters are upset. When the cashier at the supermarket hands her the receipt for products in her half-empty trolley, Jane Sixpack trusts what Groucho Marx would call her “lyin’ eyes” rather than Trump’s promise to lower prices or Powell’s view that the increases are a one-time thing. Then her housekeeper-husband greets her at the door of their apartment — a house is beyond reach because of high mortgage rates — complaining about the high prices of cars, both new and used.
The Sixpacks don’t have to understand Fed speak, with its talk of a preferred measure of inflation that rose at a rate of only 2.5 per cent in the past year, or the difference between a one-time increase in prices and the long-term inflation trend. They are angry enough to join the 55 per cent of Americans who tell YouGov that they disapprove of how Trump is handling his job, and perhaps deny his Maga team their votes in the upcoming mid-term elections on November 3, 2026.
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Add to continued inflation an economy that continues to grow, sending another stand-pat signal to Powell. S&P Global reported the day before Powell strode to the podium at Jackson Hole that US business activity has increased smartly this month, at a rate that suggests the economy is growing at an annual rate of 2.5 per cent, compared with 1.3 per cent in the first two quarters. Growth and hiring in the resurgent manufacturing sector have led the way, expanding in July at the fastest rate since 2022.
Then add earlier reports that retail spending in July was 3.9 per cent higher than last year, that Trump’s “Big Beautiful Bill” contains tax cuts designed to accelerate economic growth, and that the stimulus provided by deficits is declining, and you do not have an economy crying out to the Fed for stimulative cuts in its benchmark interest rate. But Powell sees the slowdown in American economic growth in the first half of the year as evidence that a rate cut will not overheat the economy.
Nor is he sticking with his earlier insistence that the be-all and end-all of measures of the labour market is the unemployment rate, now at a low 4.2 per cent. He now believes that the labour market is in a “curious kind of balance”, and that risks to maximum employment are rising.
Which they surely are: resignation rates are falling; new entrants to the labour market are having difficulty finding jobs; the number of recipients of unemployment benefits is at its highest level since 2021; and there is pressure on chief executives to freeze (think, Meta) or cut (think Amazon) payrolls to offset tariffs and cash drains created by AI investments.
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Powell surveyed this economic landscape and announced: “The shifting balance of risk may warrant adjusting our policy stance.” Plain English: lower interest rates ahead. Markets soared. The threat that interest rate cuts will cause more than a one-time price increase caused the dollar to plunge — a long-time objective of the president. But Trump wants rates cut by three full percentage points — and now, not on September 17-18 when the Fed’s policymakers convene to appraise new data and make a final decision.
Trump’s continued unhappiness with Powell only underscores the fact that, alone among leaders of the nation’s institutions — charities, the legal system, museums, big corporations, universities — Powell has successfully defended the independence of the institution he leads. Not a small achievement.
irwin@irwinstelzer.com
Irwin Stelzer is a business adviser