Jerome Powell and the Fed Head for Another Collision with Trump

Inside the halls of the Federal Reserve’s headquarters overlooking Constitution Avenue in Washington D.C., casual mentions of the incoming Trump administration are cautious and infrequent. That’s by design.

Donald J. Trump had a fraught relationship with the politically independent Fed during his first term. The president wanted central bankers to lower interest rates more aggressively and faster than they thought was economically appropriate. When officials refused to comply, he blasted them as “boneheads” and an “enemy.” He flirted with trying to fire Jerome H. Powell, the Fed chair. He tried (and failed) to appoint loyalists to central bank leadership roles.

As the Fed enters a new Trump era with interest rates higher than they were at any point in his first term, tensions seem poised to escalate once again — and America’s central bank is on high alert.

Fed analysts try to avoid casually discussing tariffs in email or Microsoft Teams meetings, wary that the information could become public and make the Fed look anti-Trump, according to one staff economist who spoke on the condition of anonymity to discuss the sensitive matter. Hallway chatter has taken a negative tone but is often studiously generic and apolitical, according to people familiar with the mood inside the building who also requested anonymity. And while Fed officials and economists have had to begin to consider what Mr. Trump’s promised policies might do to growth and inflation, they have avoided publicly speculating.

Central bankers are, in effect, keeping their heads down to stay out of the limelight. But try as they might, they appear destined for another crash course with Mr. Trump.

The president-elect promised “interest rates cuts the likes of which you have never seen before” while campaigning. Fed officials have been cutting rates since September and are on course to lower them further as inflation cools, but they are unlikely to reduce them as much as Mr. Trump is hoping.