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President Trump started the week complaining again that the Federal Reserve should be cutting interest rates — yesterday.
“With Energy Costs way down, food prices (including Biden’s egg disaster!) substantially lower, and most other ‘things’ trending down, there is virtually No Inflation,” he said Monday on his Truth Social platform. “But there can be a SLOWING of the economy unless Mr. Too Late, a major loser, lowers interest rates, NOW.”
He’s entitled to his opinion, even if data show consumer prices rising faster than the Fed’s 2 percent target. But this is more than a dispute with Fed chair Jerome Powell — the aforementioned “Mr. Too Late” — over what’s best for the economy.
Trump’s disparagement of Powell — and threats to fire him — is a grab for power over a central bank long prized for its independence.
The Truth Social post roiled financial markets on Monday, just as similar criticism did last week. The Standard & Poor’s 500 index was down 2.4 percent. The Dow Jones industrials and Nasdaq fell about the same amount. Longer-term Treasury yields rose, with the 30-year bond hitting 4.41 percent, its highest level since January.
“This isn’t just a disagreement over timing. It’s a power struggle between fiscal force and monetary independence,” Nigel Green, chief executive of deVere Group, an investment advisory, said in a note to investors. “Markets are reacting. And they should be.”
Why it matters: The effort is Trump’s latest to expand presidential power.
In fewer than 100 days, his administration has imposed global tariffs without congressional sign-off, defied court orders over deportations, and pressured law firms, universities, and the media to fall in line.
Trump’s trade war has already battered financial markets and raised the odds of a recession. The S&P 500 has tumbled 8.4 percent since April 1, the day before the “Liberation Day” tariffs were unveiled.
Exposing the Fed to political meddling would further undermine confidence in US economic stability.
“There is ample evidence of the importance of central bank independence,” economist Thomas Drechsel of the University of Maryland wrote in February for EconoFact, an online publication of the Fletcher School at Tufts University.
Countries with more independent central banks tend to keep inflation lower without driving up unemployment, Drechsel said. “Countries in which politicians have more power over central banks . . . have a history of higher inflation and more economic instability.”
What to know: Powell has steadfastly defended the Fed’s neutrality as it pursues a congressional mandate to maximize employment and keep prices stable. He has said more than once that the central bank chair can’t be axed in a disagreement over policy.
“Our independence is a matter of law,” he said Wednesday.
But whether the president can demote the Fed chair without cause hasn’t been stress-tested in court. Trump may be tempted to try that despite warnings from advisers who believe such a move could cause market havoc.
Speaking with reporters on Thursday, Trump boasted, “If I want him out, he’ll be out of there real fast, believe me.”
He’s already fired the two Democrats on the Federal Trade Commission, another independent agency. The commissioners are fighting to keep their jobs in court. Trump could be emboldened if the Supreme Court, which is expected to eventually hear the case, allows the dismissals to stand.
The backstory: Trump nominated Powell to run the Fed during his first term in 2017. By mid-2018 he was griping about the Fed tightening credit after a decade of ultralow rates. He mulled removing Powell but backed off when advised he lacked the legal authority to do so.
The complaint this time around is that the Fed isn’t cutting rates fast enough.
Trump’s latest ire was apparently sparked by comments on Wednesday in which Powell said tariffs had put the Fed in a bind. The duties could both slow economic growth and boost inflation, Powell said, so the Fed would need to hold rates steady to see how things play out before making its next move.
What’s next: The irony here is that the betting on Wall Street is for the Fed to make up to four quarter-point cuts this year, probably beginning in July.
The reason won’t be Trump’s jawboning. Rather, investors believe the tariff shock will prompt the Fed to take out insurance against a recession.
Final thought: Like mom and apple pie, everyone loves cheap credit.
It makes home mortgages and auto loans more affordable. It boosts confidence and fuels spending by consumers and businesses. Easy money makes it cheaper for the government to pay down its massive debt.
The Fed’s hands are tied not by incompetence, as Trump claims. The blame goes to his disruptive policies, which have created economic uncertainty and the threat of renewed inflation.
Will the president muster enough self-restraint to back off and let Powell do his job? His Treasury secretary, Scott Bessent, called the central bank’s independence a “jewel box that’s got to be preserved.”
But Trump covets that jewel box. It’s one of the few powers that remains beyond his reach.
Memo to the C-suite: You could join Harvard on Trump’s hit listTrump backed down on tariffs, but not before scorching investors and damaging the economyWall Street and the dollar sink again as Trump’s pressure on Fed erodes appeal of US assets, sending S&P 500 down 2.4%
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