Trump Revives Fed Pressure, Seeking Lower Interest Rates
Davos, Switzerland – President Donald Trump has reignited his campaign to influence the Federal Reserve (Fed) to lower interest rates. During a video call at the World Economic Forum in Switzerland, Trump urged Saudi Arabia and OPEC to lower oil prices, stating that a subsequent drop in inflation would enable him to demand lower rates.
Trump's remarks have raised concerns among economists who argue that they undermine the Fed's independence and could lead to higher long-term rates due to inflation fears. Jonathan Millar, a former Fed economist, noted that Trump's statements stop short of demanding an immediate rate cut but suggest he would advocate for lower rates if oil prices fall.
Despite these concerns, Trump claims he has a superior understanding of interest rates compared to Fed Chair Jerome Powell, saying, "I think I know interest rates much better than they do." He has also indicated that he would challenge the Fed if he disagrees with their decisions.
The Fed, designed to operate independently from political pressures, adjusts interest rates to stabilize the economy. Rate cuts stimulate economic growth, while rate hikes curb inflation. However, presidents may seek lower rates to boost the economy and support their election chances.
Trump has made similar attempts to pressure the Fed in the past. In 2020, reports emerged that his advisors were considering proposals to erode the Fed's independence. His current remarks echo those sentiments.
The Fed recently cut rates by a percentage point in 2023 to combat pandemic-induced inflation but forecast only two quarter-point cuts in 2025 due to higher inflation readings and a strong labor market. Futures markets predict the Fed will lower rates by a quarter point in June and December.
Some economists believe Trump's comments could influence the Fed's decision-making despite Powell's insistence that the Fed remains politically neutral. If rates are lowered sooner than expected, investors may question the Fed's independence, whereas delaying rate cuts could also raise concerns of political interference.
Francesco Bianchi of Johns Hopkins University warns that Trump's pressure could ironically lead to higher long-term rates due to inflation fears. Powell's term as chair ends in 2026, and under current law, Trump cannot replace or demote him.