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Vice-President JD Vance calls the Fed’s refusal to cut rates “monetary malpractice,” backing Trump’s demand for cheaper credit as inflation cools and tariffs bite.
Table of Contents
- Why Vance’s Broadside Matters
- Trump’s Year-Long Fed Feud
- Inside the Fed’s Caution
- Market Reaction & Investor Playbook
- Key Data Dashboard
- What Comes Next
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1. Why Vance’s Broadside Matters
Vice-President JD Vance ignited fresh controversy last week when he blasted the Federal Reserve’s “higher-for-longer” stance as “monetary malpractice.” His post on X came hours after May’s headline CPI slowed to 2.4 % year-on-year, the softest print since late 2023. Vance argued that holding the federal-funds rate at 5.25 %–5.50 % is choking growth just as new tariffs start to crowd corporate margins. businessinsider.comfoxbusiness.com
The attack matters for three reasons: (i) it adds vice-presidential heft to months of presidential criticism, (ii) it intensifies political risk for Chair Jerome Powell ahead of his term expiry on November 7, 2025, and (iii) it raises the odds that rates become a core election-year wedge issue.
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2. Trump’s Year-Long Feud with the Fed
From the Davos podium in January to an unscripted White House gaggle on June 18, President Donald Trump has hammered Powell for acting “too late” on inflation. He recently demanded a full percentage-point cut after the CPI release, warning that higher borrowing costs magnify the interest bill on $34 trillion of federal debt. foxbusiness.combusinessinsider.com
Trump’s rhetoric goes beyond jaw-boning: aides have floated replacing Powell with former Fed governor Kevin Warsh or economist Judy Shelton, both seen as dovish on rates. Betting markets, however, assign just a 35 % probability that a nominee appears before December. businessinsider.com
“Maybe I should just do the job myself,” Trump joked, underlining the White House frustration with the central bank’s independence. businessinsider.com
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3. Inside the Fed’s Caution
Powell insists that the economy still faces upside inflation risks from Trump’s Phase-One tariff plan a fresh 10 % levy on $800 billion in imports. Internal staff models suggest tariffs could lift core PCE by 0.4 percentage points in H2 2025. Until officials see at least three consecutive months of sub-2 % core readings, they fear an early cut might unleash a repeat of the 1970s stop-go cycle. businessinsider.comwsj.com
Fed Governor Christopher Waller broke ranks on June 20, telling CNBC he now “leans toward a July trim” because tariffs will not meaningfully alter the price outlook. His remarks fueled speculation of an internal split reminiscent of the 2019 FOMC. businessinsider.com
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4. Market Reaction & Investor Playbook
- Bonds: The 10-year Treasury yield slid 12 basis points to 4.28 % in the two hours after Vance’s post, before retracing half the drop by the close.
- Dollar: DXY fell 0.4 %, its sharpest one-day loss since early May, reflecting renewed dovish bets.
- Equities: Regional-bank ETFs lagged the S&P 500 by 1.1 percentage points, as flatter curves threaten net-interest margins.
- Fed-Funds Futures: Pricing now shows a 64 % chance of a single 25-bp cut by September, up from 48 % a week earlier. foxbusiness.com
Portfolio tilt: Many macro desks recommend extending duration toward the 7-year part of the curve where carry/roll is most attractive while keeping short USD-JPY hedges in case tariffs jolt inflation later.
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5. Key Data Dashboard
| Indicator | Latest (May 2025) | YoY Change | Fed’s Comfort Band | Implication for Policy |
|---|---|---|---|---|
| Headline CPI | 2.4 % | ▼ 1.2 pp | ≈ 2 % | Below upper target, supports doves |
| Core CPI | 2.7 % | ▼ 0.8 pp | ≤ 2 % (sustained) | Slightly sticky; justifies caution |
| Unemployment | 4.5 % | ▲ 0.6 pp | 4 %–5 % | Near natural rate, limits urgency |
| Fed-Funds Mid | 5.38 % | — | Neutral 2 %–3 % real | Historically tight stance |
| Tariff Impact* | +0.4 pp PCE | n/a | < 0.2 pp | Could delay easing if realized |
*Fed staff baseline through Q4 2025. businessinsider.comwsj.com
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6. What Comes Next
| Calendar Date | Event | Market Focus |
|---|---|---|
| July 30–31 | FOMC Meeting | First decision after Waller’s dovish pivot. Markets look for “two-sided risk” language shift. |
| Aug 14 | July CPI Release | Will tariffs start bleeding into core goods? Under 2.5 % YoY could seal a September cut. |
| Oct 3 | Q3 Fed Beige Book | Anecdotal evidence on credit demand and wage pressures. |
| Nov 7 | Powell Term Ends | Trump must decide whether to renominate or replace the chair. |
If the next two CPI prints stay soft, analysts at Barclays say the Fed risks “political isolation” by standing pat. Conversely, a tariff-driven rebound in core goods would vindicate Powell’s patience.
External Resource
For the full Business Insider report on Vance’s remarks, click <a href=”https://www.businessinsider.com/jd-vance-trump-inflation-fed-interest-rates-cpi-powell-tariffs-2025-6″ target=”_blank” rel=”noopener”>here</a>. businessinsider.com
