Trump Urges 2-3% Interest Rate Cut Federal Reserve Resists

US President Trump has once again called on Federal Reserve Chair Jerome Powell to reduce interest rates, suggesting a cut of at least 2 to 3 percentage points. Trump made this demand through his social media platform, "Truth Social," asserting that there is no inflation and the economy is prospering. He argued that such a rate reduction would save the US a significant amount annually. This is not the first time Trump has pressured Powell; he has consistently advocated for lower borrowing costs throughout the year.

The Federal Reserve has maintained interest rates at 4.25% to 4.5% since December, following a full percentage point cut last year. Powell is scheduled to testify before Congress this week, where he will face increased pressure from both political figures and internal Fed officials to advocate for lower interest rates. This political backdrop has raised concerns about potential political influence on the Federal Open Market Committee, which is typically seen as independent from political pressures.

Fed Governor Michelle Bowman and Governor Christopher Waller, both Trump appointees, have recently expressed support for a rate cut as early as July. Bowman cited weak inflation data as a reason for potential easing, while Waller suggested a gradual approach to rate reductions. Their statements have added to the speculation that the Fed might be moving towards a more accommodative monetary policy.

Trump's demand for a significant rate cut, however, is unlikely to be met. Fed officials have indicated that any rate reductions would be gradual, with the terminal rate for the fed funds rate projected to be around 3%. Such dramatic cuts could potentially backfire, as seen in the past when Treasury yields moved higher in response to rate reductions, reflecting market expectations of faster economic growth and higher inflation.

The administration's push for immediate action from Powell has been met with criticism from some economists. They argued that the Fed's mandate is to stabilize inflation and employment, not to reduce federal borrowing costs. They also noted that the Fed's actions should be based on economic data and monetary policy rules, not political pressures.

Powell's testimony before Congress this week will be closely watched, as he navigates questions from lawmakers who may be influenced by Trump's calls for lower rates. The political pressure on Powell and the Fed highlights the delicate balance between monetary policy and political influence, raising questions about the independence of the central bank.