Trump Clashes with Fed Over 2% Inflation Target: "Too Low and Rigid" (2025)

• The Inflation Target Debate Heats Up
• A Transatlantic Monetary Policy Divide
• Fed Independence Under Fire?
• Market Reactions and What's Next
• FAQ

In a fiery statement that's shaking financial markets, former President Donald TRUMP has doubled down on his criticism of the Federal Reserve, calling its longstanding 2% inflation target "too low" and "rigid." This latest salvo comes amid growing tension between Trump and Fed Chair Jerome Powell, with the former president pushing for aggressive rate cuts to 3% while the central bank maintains a more cautious approach. Meanwhile, Russia's contrasting monetary policy under Putin's strong support of its central bank offers a striking counterpoint to the US political drama.

The Inflation Target Debate Heats Up

"He's done a terrible job since he adopted this two percent target," Trump declared in his characteristic blunt style during a September 9 announcement. The former president, known for his unconventional economic views, argued that the Fed's rigid adherence to this benchmark ignores the importance of money supply dynamics. His comments came just as Fed minutes revealed most officials favored holding rates steady at 4.25%-4.50%, with only two dissenters pushing for a modest quarter-point cut.

Odds of Fed action. Source: CME group

A Transatlantic Monetary Policy Divide

The contrast with Russia's approach couldn't be sharper. While Trump publicly feuds with the Fed via social media, Putin has thrown his full weight behind Russia's central bank - even as it maintains punishing 18% interest rates. "I usually have constant talks with the Central Bank," Putin noted, showcasing a collaborative approach that's drawn criticism from Russian business leaders but maintained price stability.

Fed Independence Under Fire?

Trump's latest remarks raise fresh concerns about central bank independence. "I'm concerned about the Fed's competence, not whether it's independent or not," he stated, revisiting his controversial 2019 stance. The former president has even floated replacing income taxes with tariffs, harkening back to pre-1913 fiscal policy - a suggestion that's drawn both cheers and raised eyebrows from economic historians.

Market Reactions and What's Next

With Powell signaling potential September rate cuts amid labor market concerns, the stage is set for continued tension. CME Group data suggests markets are pricing in a 25 basis point reduction, falling short of Trump's demands. As the Fed walks its tightrope between inflation control and economic growth, one thing's clear: this monetary policy drama has plenty of chapters left to write.

FAQ

What is Trump's main criticism of the Fed?

Trump argues that the Fed's 2% inflation target is too low and rigid, claiming it doesn't properly account for money supply importance. He's pushing for deeper rate cuts to 3% to stimulate economic growth.

How does Russia's approach differ from the US?

While Trump publicly clashes with the Fed, Putin strongly supports Russia's central bank even as it maintains much higher interest rates (currently 18%). This has created tension with Russian business leaders who want lower rates.

What are the implications for Fed independence?

Trump's comments and attempts to replace Fed officials who disagree with him raise concerns about political influence on monetary policy, traditionally an independent domain of central banks.