Econographics
September 15, 2025 • 1:36 PM
The Fed struggles to balance Trump’s demands with economic reality
By Jessie Yin
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Contents
Fed Under Pressure: Politics Versus Economics
Ah, the Federal Reserve! Caught in a bit of a quandary, aren’t they? Since President Trump’s address to the World Economic Forum back in January, he’s been urging the Fed to lower interest rates. Yet, the rates have remained steadfast, while inflation hovers above the illustrious 2 percent target. This is largely due to the inflationary concerns brought about by Trump’s tariffs (learn more about tariffs).
Political Pressures and Historical Comparisons
Now, it’s no secret that the Fed faces intense political pressure from the White House. The President is quite miffed, as the economy isn’t quite the robust beast he inherited in his first term. Back in 2017, inflation and unemployment were notably lower than today’s forecasts for 2025. In fact, Trump’s initial year in the Oval Office ushered in lower inflation and unemployment than any U.S. president since 1977.
Dual Mandate Dilemmas
To complicate matters, the Fed operates under a rather unique dual mandate. It’s tasked not only with price stability but also “maximum employment” (Federal Reserve’s dual mandate). This typically translates to a 4 to 5 percent unemployment target and a 2 percent inflation aim. This delicate balance may soon prove quite the pickle. Last month, during his address at Jackson Hole, Fed Chair Jerome Powell hinted at possibly lowering rates come September, citing a slowdown in worker supply and demand.
Labor Market: A Tricky Terrain
Oh, the labour market! Congress added the maximum employment mandate to the Federal Reserve Act in 1977, prompted by the harsh lessons of stagflation (learn about stagflation). The Bureau of Labor Statistics released a report at the start of September showing a mere 22,000 jobs added, starkly lower than the anticipated 75,000. This shortfall has fueled expectations of a rate cut, much to President Trump’s delight. However, inflation rose to 2.9 percent in August, adding complexity to the mix.
Trump’s Aspirations Versus Reality
The U.S. now finds itself at the precipice of rising unemployment and inflation. Trump, ever the optimist, desires low interest rates, low inflation, and a surging job market. These elements briefly coexisted during his first term. Alas, most presidents encounter a Fed forced to weigh its decisions. Bloomberg’s projections (Bloomberg consensus) suggest that U.S. inflation could persist above target up to 2027, driven by tariff impacts. Should this continue, the Fed might find itself raising rates again to curb inflation.
The Fed’s job isn’t enviable. It juggles political demands while trying to maintain economic equilibrium. Despite attempts by the Trump administration to reshuffle its governors, the Fed’s dual mandate is a Congressional gift, not merely a suggestion. It must carefully consider employment, inflation, and macroeconomic conditions. Politicising economic data only weakens the Fed’s decision-making and erodes market trust. A slippery slope, indeed.
Jessie Yin is an assistant director at the Atlantic Council’s GeoEconomics Center.
This post is adapted from the GeoEconomics Center’s weekly Guide to the Global Economy newsletter. Interested in the newsletter? Email SBusch@atlanticcouncil.org.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center aims to shape a better global economic future.
