Fed chief Jerome Powell faces contemporary conflict over fee cuts

Federal Reserve chairman Jerome Powell is facing a fresh clash with Donald Trump as the US central bank is set to leave interest rates on hold this week.

The President has put the Fed under intense pressure to cut rates – but Powell is expected to resist despite fears of a recession looming over the world’s largest economy.

Inflation remaining above the Fed’s 2 per cent target is to blame and Trump’s swingeing tariffs on goods from China, Mexico and Canada are likely to create further pressure on prices.

Tax cuts could also stoke further demand while the new administration’s goal of mass deportations of immigrants could push up wages – another potentially inflationary trend. James Knightley, chief international economist at ING Bank, said: ‘We’ll be waiting at least until September for the first rate reduction.’

It comes as US stock markets suffer a steep sell-off amid recession fears while a drive led by the President’s ally Elon Musk to slash public spending and government jobs also threatens to dent the economy.

And Trump’s apparent indifference to the turmoil is itself raising eyebrows; the President dismissed market sell-offs as ‘a little disturbance’.

Collision course: Jerome Powell looks set for a new clash with Donald Trump

Key economic data is also starting to paint a worrying picture, with latest monthly jobs figures falling short of expectations and consumer confidence measures weakening.

But earlier this month, Fed chief Powell said it was not ‘in a hurry’ to cut rates as he played down recession fears.

Investec economist Ellie Henderson said: ‘Although we concur that the US economy is likely losing some momentum, we think recession fears at this stage are probably overblown.’

Powell has already defied Trump once when the Fed left rates on hold in January while also mounting a robust defence of his banking system’s independent decision making.

The Fed’s move this Wednesday comes a day ahead of the Bank of England’s rate meeting, which is also likely to see UK rates left on hold as inflation remains above target.