Former President Donald Trump, unsurprisingly, is calling on the Fed to cut interest rates again. He goes on to assert that if Fed Chair Jerome Powell were worth his salt, rates would be lower by now. Trump’s statements come as the nation’s central bank continues to hike its benchmark borrowing rate to a range of 4.25%-4.5%. Yet this rate has not changed since December 2022. Recent price declines across all sectors have created a unique opportunity for this discussion. Trump contends that these declines should result in lower interest rates.
The president’s criticism of the Federal Reserve isn’t new. He claims that lowering interest rates would boost economic activity and rein in inflation. But he pointed out that some prices have already started to fall. That would indicate it’s high time to reconsider the current, excessively tight monetary policy from the Fed.
“If we had a Fed Chairman that understood what he was doing, interest rates would be coming down too.” – President Donald Trump
At a speech in Japan last week, Powell addressed the dangers created by Trump’s controversial tariff policy. He cautioned that this plan would be inflationary in the short term. This quandary makes it difficult for the Fed to achieve its dual mandate of pursuing maximum employment in conjunction with long-run price stability. Powell recognized that the pressures created by the tariffs would prevent them from making meaningful strides in pursuit of these objectives.
Powell reiterated his commitment to serving out his term. It is set to expire in May of 2026. He reiterated that his position cannot be terminated legally by the president, a statement that Trump seemingly countered with his own remarks on social media, stating, “Powell’s termination cannot come fast enough.”
Trump’s wording led to speculation about a possible Trump administration attempt to force Powell out of his position before the term was up. The former president’s discontent with the Fed’s current interest rate policy has intensified, particularly as financial markets anticipate that the central bank will maintain its current rates during its upcoming policy meeting, with futures pricing in over a 90% likelihood of this outcome.
Senator Elizabeth Warren weighed in on the issue, expressing her alarm over Trump’s statements. She cautioned that an attempt to terminate the Fed chair would result in dire consequences for U.S. financial markets.
“If Chairman Powell can be fired by the president of the United States, it will crash markets in the United States.” – Sen. Elizabeth Warren
Kevin Hassett, an advisor to the Trump administration, mentioned that they would explore any potential legal avenues for Powell’s removal. The administration is still reviewing if there is in fact “new legal analysis” on this issue.
With growing discord between Trump and Powell, the economy is vulnerable. The Federal Open Market Committee is faced with the challenge of balancing employment and inflation concerns amid external pressures, including trade policies and global economic conditions.
“We may find ourselves in the challenging scenario in which our dual-mandate goals are in tension.” – Jerome Powell
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