Is Trump’s Harsh Criticism of the Central Bank Justified?

Controlling inflation is a key indicator of the performance of the U.S. central bank, and President Donald Trump has made it clear that he believes Jerome Powell’s team is doing a poor job. Analysis supports Trump’s view, writes Reuters columnist Stephen Jen, head of the asset management firm Eurizon SLJ. Jen’s team compared the Fed’s performance in controlling inflation with historical averages to assess whether the White House’s opinion is justified.

The answer is affirmative, the conclusion of their analysis states. In the analysis, we calculated the movement of average inflation values and key interest rates over the past six cycles, from 1971 to 2016, and compared them with their trajectory in the current cycle, writes Jen. During that period, the Fed on average began raising interest rates only five months after inflation began to strengthen. In the current cycle, inflation started to strengthen in the summer of 2020, and the Fed only began raising interest rates in March 2022, meaning they waited 20 months, the analysis showed.

Inflation reached its highest level in the current cycle in June 2022, only to sharply weaken by June 2023. The central bank again delayed changing interest rates and only began to lower them in September 2024, the analysis showed. The historical average thus indicates that they were delayed by 20 months, concluded Jen and his team. However, the analysis is quite simplified and likely too limited as it only considers inflation and not the unemployment rate, emphasizes Jen.

However, inflation is the main problem in the current cycle, he adds, noting that cumulative excessive inflation in the U.S. since 2019 has been among the highest in the world. Only a few European countries experienced stronger price growth, which felt the effects of the sudden halt of Russian energy imports in 2022, he points out. If the dollar had not strengthened, inflation in the U.S. could have been even stronger, notes Jen, and therefore the focus of the analysis on inflation, in his words, is justified.

Trump’s cabinet has claimed multiple times that the Fed is lagging in its response to the inflation trajectory, and our analysis suggests they were right then and are right today, writes Jen. This means that if the Fed begins to significantly lower interest rates in the upcoming quarters, which it likely will, it will not mean that they are no longer independent, even though it may seem that way. This may be the price that the U.S. central bank will have to pay for its significantly delayed response to inflation movements, he noted in a Reuters column as the head of the London-based firm Eurizon SLJ.