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Last Friday in Jackson Hole, Federal Reserve ChairmanJayPowellfinally – and grudgingly – admitted what theTrumpteam has been saying all along:tariffs don’t fuel inflation.
At most,tariffs create aone-time adjustment in prices, not the kind of runaway spiral that demands punishing rate hikes. And even thatone-time bump may be negligible if, as we have long argued, foreign exporters – not American consumers – shoulder most or all of the burden.
The implication is clear: whether the impact is zero or merely aone-time step-up in prices, there is absolutely no justification for the Fed to hide behind “tariffuncertainty” as an excuse for overly restrictive interest-rate policy.
Federal Reserve Chairman Jerome Powell walks off following a news conference, May 7, 2025, at the Federal Reserve in Washington. (AP Photo/Jacquelyn Martin)
This really is a historicepiphanyfrom a Fed chair who has long misunderstood the power ofTrumpnomics– the four beautiful horsemen of economic growth and price stability:tax cuts, deregulation, strategic energy dominance and fair trade.
THE FED’S FOOLISH INTEREST RATE POLICY IS STOPPING AMERICA’S ECONOMY FROM BOOMING
Trumpnomics delivered both strong economic growthandprice stability in the first term. It is delivering again in the second.
Markets immediately recognized the punch ofPowell’stariffepiphany. The Dowsmashed through its 45,000 ceiling– and I remainonrecord predicting a march to 50,000. Yieldsonthe 10- and 30-year Treasuriestumbled, driving bond prices sharply higher.
Clearly, Wall Street gotPowell’s dovishtariffmessage: the door to a September rate cut is now wide open. Theonly suspense is whetherPowellwill nibble with 25 basis points – or cut far more boldly.
But here’s the lingering fear, from the West Wing to Wall Street: WhilePowellmay now grasp thattariffs don’t fuel persistent inflation, he still doesn’t understandwho pays.
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GOOD ECONOMIC DATA IS BAD NEWS FOR TRUMP’S INTEREST RATE PUSH
Memo toJay: Everyone of America’s major trading partners – the same countries driving our$1 trillion annual trade deficit– is deeply dependentonaccess to the U.S. market. WhenTrumpslapsontariffs, it istheir exporters, not our consumers,who shoulder the burden. Without U.S. demand, their economies falter – so pay thetariffpiper our trading partners must.
That’s why inTrump’s first term, despite all the handwringing from the “Panicans” about looming inflation,tariffsoneverything from steel and aluminum to China produced the opposite:robust growth with price stability.
IfPowellclings to timidity and keeps rates overly restrictive, he will continue inflicting enormous harmonthe U.S. economy. American families are already being crushed by the world’s highest mortgage rates, small businesses can’t get affordable credit, and exporters face a dollar so overvalued it prices them out of global markets.
Global rate spreads underscore just how out of touch the Fed is with the rest of the world. The European Central Bank’s deposit facility sits at2%. The Bank of Japan holds near0.5%. China runs its seven-day repo at1.4%. Against that backdrop, the Fed’s4.25%–4.50% target rangeremains a glaring outlier – more than 200 basis points above Europe, nearly 400 above Japan, and triple China.
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LEFT’S TARIFF DOOMSDAY PREDICTIONS FALL FLAT AS TRUMP’S AMERICA THRIVES
The result: the U.S. economy combines the world’s highest policy rates and mortgage rates with the world’s strongest currency – atriple hitto American exporters.
Financing disadvantage: American manufacturers pay more to borrow, making new plants and equipment costlier.Currency distortion: Elevated Fed rates keep the dollar over-priced, inflating the price of U.S. exports while giving foreign competitors a pricing edge.Market share erosion: Foreign rivals win contracts not because they innovate, but because they borrow cheaply and undercut U.S. prices.
Onthe home front, thePowellsqueeze is just as punishing. Average 30-year fixed mortgage rates remain stuck in the6–7% range, double pre-pandemic levels. That locks millions of young families out of the housing market and stalls residential construction — historicallyone of the most powerful engines of U.S. recoveries.
Small businesses, reliantonbank credit rather than Wall Street bond markets, facedouble-digit loan ratesthat suffocate job creation. Consumers pay moreoneverything from credit cards to auto loans.
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And for what?Disinflation is already here. Headline CPI is back near 3% year-on-year. The Fed’s preferred PCE measure runs closer to 2.5% – essentiallyontarget. Energy prices are subdued, supply chains have healed, and wage pressures are stabilizing. YetU.S. real (inflation-adjusted) rates now stand higher than at any point in nearly two decades– a textbook case of over-tightening.
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Powelldefends this stance by claiming the Fed must “anchor inflation expectations.” He has clutched his pearls over the mirage oftariff-driven inflation, even as history shows those fears are overblown.
Powell’s Jackson Hole admission – thattariffs create, at most, aone-time price adjustment – was anepiphanylong in coming.The question now is whetherPowellwill actonthatepiphany.
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A token 25-basis-point trim in September would not cut it. To realign America with its global peers, to relieve pressureonfamilies and farmers, and to restore competitiveness to U.S. exporters, the Fed must move decisively with anup to a 100 basis point cut.
It’s time for the Federal Reserve to stop mistaking tight money for prudence. Keeping U.S. rates far above the rest of the world is not a sign of strength. It is a policy mistake –one that strangles American growth and hands our competitors the advantage.
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Peter Navarro is the White House senior counselor for trade and manufacturing.