Jay Powell refuses to bend on interest rates, but he's as bad as Trump when it comes to promoting crypto and weakening other financialregulation.View this email in your browser [link removed]
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****JUNE 25, 2025****
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****Kuttner on TAP****
**Trump versus the Fed**
**Jay Powell refuses to bend on interest rates, but he's as bad as Trump when it comes to promoting crypto and weakening other financial regulation.**
Fed Chair Jay Powell, **testifying before the House Financial Services Committee** [link removed] Tuesday, defended last week's unanimous Fed decision to keep interest rates unchanged, citing both the core inflation rate of 2.6 percent in May, well above the Fed's 2 percent target, and the risk of higher prices driven by tariffs.
"The effects [of tariffs] on inflation could be short lived—reflecting a one-time shift in the price level," Powell said. "It is also possible that the inflationary effects could instead be more persistent."
Powell's criticism of tariffs, a Trump favorite, will further enrage the president. On the eve of Powell's appearance, blasting the Fed Chair on Truth Social, **Trump wrote** [link removed], “‘Too Late’ Jerome Powell, of the Fed, will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate ... I hope Congress really works this very dumb, hardheaded person, over."
Last week, correctly anticipating that the Fed would hold rates steady, **Trump was scathing** [link removed]. Speaking at a White House press event, Trump said the U.S. has collected $88 billion from tariffs and has no inflation. But "we have a stupid person, frankly, at the Fed," Trump said. “I call him every name in the book trying to get him to do something,” Trump added. “I’m nasty, I’m nice—nothing works.”
“Am I allowed to appoint myself at the Fed?” he asked. No, he's not. The Supreme Court **recently made clear** [link removed]. that the Fed Chair is one of the few term appointees at independent agencies who the president can't fire.
Trump has also increased the pressure on Powell via allies on the Fed Board of Governors and other agencies. Two key members of the central bank’s open market committee — **Vice Chair for Supervision Michelle Bowman** [link removed] and Gov. Christopher Waller — recently said that they would support cutting rates as soon as next month.
While Powell is likely to hang tough on monetary policy, and he has a working majority on the Fed to back him up, he gets worse and worse on the Fed's other key responsibility, bank regulation. In April, the **Fed withdrew regulatory guidelines on crypto** [link removed], making it easier for crypto holdings to invade the banking system, and for crypto promoters (like Trump) to get even richer.
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The Fed statement cited the need to promote "innovation." But crypto innovation adds nothing except for windfall profit for insiders and risk to the financial system.
The lax Fed policy on crypto is likely to interact with the misnamed GENIUS Act, in which both parties in Congress, responding to a torrent of money from the crypto industry, will further weaken regulatory protections, **as our colleague David Dayen has explained** [link removed]. Far from joining the parade, the Fed should be using its power to counteract the new risks.
On Monday, further abandoning its regulatory responsibilities, the Fed **weirdly announced a policy change** [link removed] whereby reputational risk will no longer be a component of examination programs in its supervision of banks. The reputational risk provision has been included so that examiners can dissuade banks from doing risky things that would in turn lead investors to question their reliability.
The policy reversal is a flagrant invitation for banks to engage in more speculative behavior. Banks had been lobbying for the change.
The regulatory changes, bad policy in their own right, should cheer Trump in his role as crypto shill, but Trump is fixated on the Fed's monetary policy and he is incensed that Powell is one top official who he can't fire. This doesn't make Powell a good guy. He is right about the risks of tariffs increasing the rate of inflation, but is wrong about the economy running too hot. In 2024, his monetary policy was too tight at a time when the economy was on a non-inflationary path to recovery, long before Trump brandished tariffs.
On the other hand, anyone in government who slows Trump down has to be counted as a kind of ally. Strange times.
**~ ROBERT KUTTNER**
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