WSJ What’s News
How Trump’s Pressure on the Fed Could Undermine Confidence in Its Next Chair
Fri, 25 Apr 2025
P.M. Edition for April 25. WSJ chief economics correspondent Nick Timiraos considers the economic consequences of how the central bank’s relationship to the White House is perceived. And economics correspondent Harriet Torry looks at the latest drop in U.S. consumer confidence. Plus, a Milwaukee judge’s arrest marks a major escalation of the Trump administration’s clash with local officials over deportations. Pierre Bienaimé hosts. Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices
Chapter 1: What are the latest trends in U.S. consumer sentiment?
Chapter 2: How does President Trump's pressure affect the Federal Reserve?
The more that you bash the Fed, the more you create a shadow of suspicion. The market's going to wonder now, is the Fed changing interest rates because they just think this is the right thing to do, or are they doing it because the new Fed chair is has some side deal with the president.
And a Milwaukee judge is arrested and charged in federal court for obstructing immigration enforcement. It's Friday, April 25th. I'm Pierre Bien-Aimé for The Wall Street Journal, filling in for Alex Osola. This is the PM edition of What's News, the top headlines and business stories that moved the world today. Consumer sentiment continues to sour among Americans.
According to the University of Michigan's closely watched measure, U.S. households ended April feeling much worse about the economy than they did in March. Its final index out today of consumer sentiment for April was 52.2, down from 57 the prior month. Respondents said they expect prices to surge 6.5 percent over the next year, up from expectations in March for a 5 percent increase.
The survey said that was the highest reading since 1981. Wall Street Journal economics correspondent Harriet Torrey joins me now. Harriet, what is it that's driving consumer sentiment down?
Consumers are generally feeling pretty skittish about the economy. And if you look at the various components of the index, they're worried about their jobs, they're worried about their incomes, and they expect higher inflation. So that's really a recipe for stagflation.
It seems like just a great deal of uncertainty about the direction of the economy is really causing people to feel pretty uncertain. So trade policy, for instance, and prices, you know, how import tariffs will impact prices. Inflation expectations are up by a lot in the short term. So year ahead inflation expectations are 6.5% this month.
And that is extremely high, especially when you look at the most recent inflation data, which is only a little bit above 2%. So consumers are really expecting a big spike in prices. And over the longer term, five to 10 years, consumers are also expecting higher inflation. Not quite as high, but it was definitely up in April versus in March. And it's causing them anxiety.
How significant are consumers' expectations to the economy?
Well, consumer spending is what drives the US economy. But having said that, consumer sentiment doesn't always translate into consumer spending. So for instance, in 2022, we saw a very, very sharp drop in consumer sentiment. People were extremely worried about the economy and very depressed about inflation. But at the same time, they carried on spending.
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Chapter 3: What factors are contributing to declining consumer confidence?
And as we saw in the survey, there is a big split along partisan lines. So in April, we saw sentiment drop among Democrats to its lowest on record, whereas among Republicans, it picked up slightly.
and expectations for the future they dropped across all parties so everyone is feeling a little worried about the future but republicans are feeling pretty good about the current situation and democrats on the other hand are feeling very negative about both the current situation and the future
Harriet Torrey covers the economy for The Wall Street Journal. Thanks so much, Harriet.
Thank you.
And in its first quarter earnings report today, Colgate-Palmolive said it's feeling consumers' uncertainty firsthand as they have been buying less toothpaste and soap. The maker of Ajax and SoftSoap lowered its full-year guidance based on the estimated cost of tariffs, which it expects to be around $200 million for the year. The figure doesn't account for tariffs that have been paused.
Colgate-Palmolive now projects earnings will increase in the low single digits compared with previous guidance in January of mid-single-digit growth. U.S. stocks ended the week mostly higher after a choppy day of trading. Major indexes closed higher for the fourth consecutive day. The Dow traded close to flat, while the Nasdaq composite rose roughly 1.25%.
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Chapter 4: How do inflation expectations impact consumer behavior?
The S&P 500 rose around three-quarters of a percentage point. But analysts aren't sounding the all-clear for markets, cautioning that Trump's tariff policies may have done long-lasting damage to the U.S. 's credibility with overseas investors. Given the rising challenges from hefty U.S. tariffs, China aims to implement more growth-supporting measures.
According to the state-run Xinhua News Agency, the Chinese Communist Party's top policymaking body said the government intends to cut interest rates and the amount of cash banks are required to set aside at the central bank. It says it will also make full and effective use of existing fiscal and monetary policies.
Chapter 5: What is the partisan divide in consumer sentiment?
The Politburo said companies significantly affected by tariffs could receive more funds from the country's unemployment insurance in order to support job retention. China also pledged to maintain a stable and active capital market, which is seen as crucial to anchor confidence in the world's second biggest economy.
Coming up, why President Trump's attacks on Jerome Powell could put a shadow of suspicion over the next central bank chief. That's after the break.
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President Trump has backed off from an implied threat to terminate Federal Reserve Chair Jerome Powell. But economists and former U.S. policymakers say the president's demand that the Fed lower interest rates could undermine investors' confidence in the next Fed chair. Powell's term ends in May 2026. Nick Timuros is The Wall Street Journal's chief economics correspondent, and he joins me now.
Nick, you spoke with some experts and former policymakers. What's their concern regarding the Federal Reserve?
The Federal Reserve has been seen as independent, which means that they are going to set interest rates based not on some sort of political calendar or presidential demand, but on doing what it takes to keep inflation close to their 2% goal and having a strong labor market. And so when you have... people beginning to wonder why the Fed is setting interest rates.
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Chapter 6: What are the economic implications of Trump's tariff policies?
Is it because of politics or is it because of how they see the economy? That can influence what happens with inflation and interest rates on the part of investors.
How would that affect investors' thinking?
As you said, Jay Powell's the Fed chair until May of 2026. And so even if you're not going to try to remove him, the question is, when you replace him, can the market be confident that that person is going to take the same view towards keeping a lid on inflation? Are they going to set interest rates with the same sort of criteria that they have for the last 20 years? Or
Are you going to try to find somebody who will just do whatever the president wants him to do? And the more that you bash the Fed now, the more you create a shadow of suspicion, as one of these former Fed officials said to me, that the market's going to wonder now, is the Fed changing interest rates because they just think this is the right thing to do?
Or are they doing it because the new Fed chair has some side deal with the president?
It's not only the Fed chair. How could Trump reshape other aspects of the Fed's personnel or policy?
Well, there are limits to what any Fed chair can do. So the Fed chair has just one of 12 votes on the Federal Open Market Committee. That's the body that sets interest rates. The president may have the opportunity to replace more Fed governors if they resign or retire before their terms are up. But if he only can appoint one Fed governor, then there's less ability to
maybe, to influence what's going to happen to monetary policy. I compare it to the Fed chairs like the quarterback. They're one player on the field, and it's a very important player. They get to call the play. But it doesn't mean that every receiver or running back is going to run to the right place.
If other members of the FOMC don't agree with what the chair wants to do, then the chair may not get to do that. And we haven't really been in a situation before. Really, it's been 30 years since we've had a situation where The Fed board maybe wanted to do something that the Fed chair did not want to do. That was Nick Timros, The Wall Street Journal's chief economics correspondent.
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