Trump asks Fed to cut rates, questions central bank’s monetary strategy

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WASHINGTON: Donald Trump has called for an immediate cut in interest rates, claiming he knows better than those responsible for setting monetary policy, even as the Federal Reserve has put any changes on hold indefinitely. .

“With oil prices down, I’m going to call for interest rates to be cut immediately, and so, they’re going to have to cut interest rates around the world,” Trump said Thursday at the World Economic Forum in Davos, Switzerland. Should be dropped.”

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 better than they do basically. But he is responsible for making that decision.” A reference to Federal Reserve Chairman Jerome Powell, whom Trump appointed to lead the Fed in his first term as president.

Trump’s remarks came five days before the Fed’s first policy meeting of his administration on Jan. 28 and 29, with widespread expectations that officials will leave rates unchanged.

The Fed last cut its overnight interest rate target by a quarter percentage point to between 4.25% and 4.5% at its December policy meeting.

For all of 2024, the Fed cut rates by a full percentage point amid easing inflationary pressures and a sense among Fed officials that they want monetary policy to be less restrictive on the economy’s momentum. At the December meeting, officials also looked at projections for cuts in 2025 amid higher inflation and slightly better growth expectations.

Trump’s comments on Fed interest rate policy are highly unusual for presidents in the modern era and contradict the agency’s design of independently setting interest rate policy. The Fed, which is not required to follow any directives from the president, did not immediately respond to a request for comment.

Policy uncertainty

Several Fed officials, including Powell, have already expressed caution about cutting rates further due to sticky inflation. Several policymakers tried to factor Trump’s potential policies into new forecasts released at the December policy meeting. Cutting rates when inflation is still above the Fed’s 2% target could signal price pressures to worsen rather than improve.

Speaking last week, New York Fed President John Williams noted that uncertainty surrounding government policy actions makes it particularly difficult to offer guidance on the outlook for monetary policy at this time.

“The economic outlook remains highly uncertain, particularly around potential fiscal, trade, immigration, and regulatory policies,” Williams said. “Therefore, our decisions about future fiscal policy actions will continue to be based on the aggregate of data, the evolving economic outlook, and the risks to achieving our dual mandate goals.”

Trump’s pursuit of massive tariffs on America’s trading partners, which are de facto taxes on imports, along with his plans to deport large numbers of undocumented immigrants, have many economists and investors According to Carr, there is a real risk of inflationary pressures reviving. The question that will come up next is whether Fed officials believe the rate hike is a one-off or the start of a more sustained hike, which could lead to interest rate hikes.

Some Fed officials believe there may soon be enough clarity on the inflation front to lower rates. Citing recent favorable price pressure data, Fed Governor Christopher Waller told CNBC on January 16 that “if we continue to get numbers like this, it’s reasonable to think that probably the first half of the year There may be a reduction in the rate.”

Waller, who was picked by Trump to be a Fed governor and take office in 2020, has also expressed some skepticism that Trump’s envisioned trade tariffs would boost inflation to the extent that they would. Many economists think so. “If, as I expect, tariffs do not have a significant or persistent effect on inflation, they are unlikely to affect my view of appropriate monetary policy,” he said on January 8. is.”

Trump had widely criticized the Fed for raising rates during the first two years of his first term and criticized Powell, whom Trump promoted to lead the Fed, for leading the effort. was Powell’s term as Fed chairman ends in 2026, and before taking office, Trump said he was not inclined to remove Powell early, amid legal questions about whether such action would even be possible.