President Donald Trump On Thursday, he launched his first attack on the Fed, saying he would apply pressure to lower interest rates.
Addressing global leaders at the World Economic Forum in Davos, Switzerland, the new president did not mention the Fed by name in a wide-ranging policy speech but made clear he would seek lower interest rates.
“I’m going to demand lower interest rates immediately,” Trump said. “Similarly, interest rates everywhere should go down. Rates should follow our lead.”
The comments were an initial blow to Fed officials, with whom he had a contentious relationship during his first term. He often criticizes the Chairman Jerome PowellPowell, a Trump appointee, has sometimes called policymakers “idiots” and compared him to a golfer who can’t putt.
Stock markets showed little reaction to the announcements, although the policy-sensitive 2-year Treasury yield edged lower to 4.29%.
2-year yield
In a flurry of events during the president’s first week in office, he did not discuss his views on monetary policy. However, during the presidential campaign, he said he should have a say in interest rate decisions.
Powell and his colleagues emphasized the importance of the Fed’s independence. Powell, in particular, often insisted that the central bank would not make decisions based on political considerations. Although Trump nominates members of the Federal Reserve Board of Governors, he has no legal authority over the Fed.
The Fed’s independence is seen as key to stabilizing markets, although the central bank has been criticized in recent years for treating a surge in inflation in 2021 as “temporary,” leading to a series of aggressive rate hikes.
Trump’s comments come as the Federal Reserve holds a two-day policy meeting that ends on Wednesday.
The market believes that the Fed has little chance of further lowering the benchmark borrowing rate. After cutting interest rates by a full percentage point in the last four months of 2024, the current target range for the benchmark interest rate is between 4.25% and 4.5%. , the first rate cut is likely to come in June, and the chances of another rate cut before the end of the year are about 50-50.
In response to inflation, the Federal Reserve lowered the funds rate after raising it by 5.25 percentage points. Although inflation remains above the Fed’s 2% target, officials say policy does not need to be as stringent because they believe the pace of price increases is slowing.
Trump blamed “wasteful deficit spending” for soaring inflation under former President Joe Biden.
“The result is the worst inflationary crisis in modern history, with interest rates skyrocketing for our citizens and indeed the world. Food prices and the price of nearly every other item known to man have skyrocketed,” he said.
Fed officials declined to comment on Trump’s remarks.
