- Trump claims to know interest rates far better than those in charge.
- The Fed set an interest rate target of between 4.25% and 4.5% in December.
- Powell has previously stressed the need to exercise caution before cutting rates further.
WASHINGTON: Donald Trump has urged the Federal Reserve to cut interest rates, insisting that its understanding of monetary policy is better than that of the officials in charge, despite the central bank’s current pause on rate changes .
“With oil prices falling, I will demand that interest rates go down immediately, and likewise, they should go down all over the world,” Trump said at the World Economic Forum on Thursday in Davos, Switzerland.
At a White House event following those comments, Trump said: “I think I know interest rates a lot better than they do, and I think I certainly know them a lot better than whoever is primarily responsible for making this decision,” apparently. a reference to Federal Reserve Chairman Jerome Powell, whom Trump appointed to head the Fed during his first term as president.
Trump’s remarks come five days before the first Fed policy meeting to be held under his administration – January 28-29 – with widespread expectations that officials will leave rates unchanged.
The Fed last cut its overnight interest rate target by a quarter of a percentage point at its December policy meeting, to between 4.25% and 4.5%.
Throughout 2024, the Fed cut rates by one percentage point amid easing inflationary pressures and a sense among Fed officials that they wanted monetary policy to exert less restraint on the dynamics of the economy. The December meeting also saw officials reduce their estimates for cuts in 2025 amid expectations of higher inflation levels and slightly better growth.
Trump’s comments on the Fed’s interest rate policy are highly unusual for presidents in the modern era and conflict with the agency’s view of setting interest rate policy independently. The Fed, which is not required to follow any instructions from the president, did not immediately respond to a request for comment.
Political uncertainty
A number of Fed officials, including Powell, have already expressed the need to be cautious about further cutting rates due to persistent inflation. Several policymakers scrambled to factor Trump’s potential policies into new forecasts released at the December policy meeting. Lowering rates while inflation is still above the Fed’s 2% target could lead to worsening rather than improving price pressures.
Speaking last week, New York Fed President John Williams noted that uncertainty surrounding the government’s policy actions made it particularly difficult to provide guidance on the current outlook for monetary policy.
“The economic outlook remains highly uncertain, particularly regarding potential tax, trade, immigration and regulatory policies,” Williams said. “Therefore, our decisions regarding future monetary policy actions will continue to be based on the full evidence base, the evolving economic outlook and the risks associated with achieving the objectives of our dual mandate.”
Trump’s pursuit of large-scale tariffs on U.S. trading partners, which are de facto taxes on imports, as well as his plan to deport large numbers of undocumented immigrants, are running rampant a real risk of reviving inflationary pressures, in the opinion of many economists and investors. The question that would then arise is whether Fed officials believe the price rise is a one-off or the start of a more lasting rise, which could in turn lead to higher interest rates.
Some Fed officials believe enough clarity could soon emerge on the inflation front to return to cutting rates. Citing recent favorable data on price pressure, Fed Governor Christopher Waller told CNBC on January 16 that “if we continue to get numbers like this, it’s reasonable to think that reductions rate changes could take place during the first half of the year.
Waller, who was chosen as Fed governor by Trump and took office in 2020, was also somewhat skeptical that the trade tariffs being considered by Trump would lead to higher inflation as many believe. many economists. He said on January 8 that “if, as I expected, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of a policy appropriate monetary policy.
Trump widely criticized the Fed for raising rates in the first two years of his first term and blasted Powell, whom Trump had appointed to head the U.S. central bank, for leading the effort. Powell’s term as head of the Fed ends in 2026, and before taking office, Trump said he was not inclined to remove Powell early, amid legal questions over whether such action would even be possible.