While geopolitical shocks dominate headlines, another power struggle is playing out between the Federal Reserve and its critics over the path of interest rates. After holding rates steady at its June 18 meeting, the Fed reaffirmed plans for two rate cuts in 2025, but gave no clear timetable—despite inflation falling to 1.4%, well below target.
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Critics, including voices like Larry Kudlow, argue the Fed is clinging to a faulty narrative: that Trump’s new tariffs will reaccelerate inflation. Yet past tariff episodes—including 25% duties on China, steel, and solar panels—never pushed inflation beyond 2%. Kudlow says productivity gains and supply-side tax incentives offset those price pressures, and today’s slowing money supply (M2 growth near 4%) adds further disinflationary weight.
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Despite that, Powell and the Fed remain cautious. At his press conference, Powell repeatedly emphasized a strong labor market—saying participation, wages, and job creation are healthy and “not crying out for a rate cut.” Yet other indicators suggest softness: the Bloomberg Labor Market Surprise Index is underperforming, initial jobless claims are rising modestly, and the unemployment rate has ticked up to 4.2–4.3%.
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That creates a split: one Fed camp warns of inflation stickiness from tariffs, while others—like Fed Governor Christopher Waller—believe cuts could begin as soon as the next meeting. Markets are aligned with the latter: traders now expect cuts in September (25bps) and December (25bps), with more in early 2025.
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The bigger critique is about transparency and independence. Kudlow calls the Fed “opaque” and driven by bureaucratic groupthink—highlighting the 12–0 unanimous votes, lack of dissent, and absence of clear economic modeling behind policy decisions. He argues the Fed is now a political institution, acting on assumptions about trade it doesn’t control, while sidelining the proven disinflationary impact of supply-side growth and deregulation.
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As volatility from tariffs and foreign conflicts ramps up, the Fed faces a credibility test. Markets want clarity, not dogma. And critics are asking: Is the Fed responding to data—or defending a worldview that no longer fits the facts?

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